ITM TRADING, INC.
Streamed live on Jul 15, 2021
The unthinkable just happened, junk bond yields fell below the rate of official inflation. This historic first and is letting you know that the system is almost dead. You might not know what this means so please allow me to explain. First, junk bonds are issued by vulnerable companies (junk). Typically, people buy them because they pay more, since you are taking more risk. Well now, even presuming a junk company survives the economic reset, you have agreed to take a purchasing power loss. In other words, even though the nominal rate is still positive (4.5% on average) the real rate of return is officially negative since inflation clocked in at 5.4%.
This is how the central banks have “managed” the markets since 2008. But now the financial system plumbing may be in trouble yet again. The RRP experiment (Reverse Repo Program), created in 2013 to sop up excess liquidity caused by QE (Quantitative Easing) with the goal of putting a floor under interest rates is groaning under the strain of massive amounts of cash in the system, and it is likely to get worse.
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