Yield-starved banks expanded lending to “relatively high-risk businesses” and to the property sector, as the Bundesbank considers house prices in many cities overvalued by 15% to 30%.
We’ll also look at its garbage pile at the bottom. These folks don’t even pretend to be stock pickers. They buy and let it stick till it falls off on its own.
After peak negative-yield-absurdity in August, bond prices fell – the “bond bloodbath” – and the mountain of bonds with negative yields has plunged by $5 Trillion, or by 30%, despite rate cuts.
They undermine banks. To dodge the fallout, banks chase yield, buying stuff like CLOs, instead of lending. When loans go bad, banks may “evergreen” them.
If the US dollar loses its hegemony as a global reserve currency, it would be a sea change globally, and specifically for the US economy. Today, we got the next installment in that saga.
