IMF says start of Fed tapering threatens $2.3 trillion bond losses

Would this cause a significant ripple over here should this happen? I have decided I'm uncomfortable with current conditions and have sold up and will sit on the sidelines for now.

Monetary tightening in the U.S. threatens to expose financial excesses and vulnerabilities that could wipe trillions of dollars off bond markets, the International Monetary Fund warned on Wednesday.
If the Federal Reserve's likely move to start scaling back its asset purchases or fallout from a possible U.S. failure to lift its ceiling on public debt raise long-term interest rates by 1 percentage point, the IMF's Global Financial Stability Report (GFSR) estimates that the market losses on bond portfolios could reach $2.3 trillion.


  • Yes, with little doubt, although US Treasury stock will be hardest hit, UK Gilts will also be effected, together with world-wide equity markets. (as happened in July)
    Very gradual tapering may produce little effect, and would be good for the long term.
    The US deficit is to me more of a worry - Can the US govt repay it's vast IOUs?

  • edited October 2013
    Couldn't agree more. Surely an unsustainable mountain of debt. It's still hard to believe we'll ultimately see the death of the dollar, but things seem to be heading in that direction as far as I can see.
    There is a fair list of currencies to join on the scrapheap!
  • One thing for sure, the US won't be starting / entering any new wars, nobody would be willing to finance such an expensive event.
    Great uncertainty lies ahead, that's for certain!
  • edited October 2013
    When uncertainty about currencies increases, the usual cry is to head for gold. However neither the gold price nor the silver price has yet to react, which suggests many don't see the current US problems as a major currency issue. Maybe that is a symptom of the complacency that always tends to precede a vertical fall in equity prices.

    However I find it difficult to believe that there won't be either a major equity crisis / correction or a major stirring on inflation within the next 12-18 months. So equity and bond markets will need close monitoring so as not to miss the initial stampede as people head for the door.

    Difficult to know where to invest to protect against these situations, but I do notice that diamond prices are rising............
  • Unless or until I see much greater volume of new bond issues I cannot see investors heading for the exit. Supply/demand technicals still in our favour, but it will pay to be increasingly picky -sub investment grade, sub 5% or 20 year plus not for me.
  • Fang, I agree, most investors aren't likely, in particular those investing in ORD bonds for their pension, be selling. However investors are likely to (review) keep their maturity dates shorter, ie within 6 or 7 years, unless punting for a shorter term gain eg on the recent A2Dominion issue. Being now nearly 100% invested, my aim is to decrease the risk, by ensuring no single bond is over 5% of total portfolio value. Thus part selling some existing issues (in particular longer dated eg 2021/22) and buying new ones if they have Oliver’s stamp (punt) (specific boat type on the River Cam at Cambridge) - of approval.
    Hopefully there will be a few new bond issues this autumn
  • shaunm,
    the 5% diversification limit may, unfortunately, turn out to be a fallacy, due to homogenous nature of ORB issuers. A majority is housing related, currently all fine & dandy. If, however, rates unexpectedly were to rise, especially with possible Labour victory in the offing then due to mortgage/rent defaults they may all go down in tandem. The other issue is transaction cost, especially for ISA; between bid/offer and dealing cost it does not pay to switch much. So I am more inclined to buy and hold "institutional" bonds, with , regrettably, bigger minimum size, and longer maturities, but better credit diversification and often higher yield.
  • interesting discussion thanks guys. Fang which institutional bonds meet your criteria of higher yield
  • Petrobras, Enel, Telefonica to name but three. Some have gone up exponentially, so no longer cheap , e.g. Iberdrola or Munich Re Hybrid. Now mostly weaker BBB territory, dyor, hard work though, as new issue info is sparse, (deliberately I think) to protect fund managers territory, as commented before.
  • I found this whistle blowers insight an interesting comment on what she thinks is going on. Apparently she has other articles as well. Don't know what you make of it but worth a listen I think considering the other comments on this topic.
  • Karen Hudes is yet another conspiracy theorist whose views I find bare comprehensible. We all know that governments are doing the big corporations´bidding, so what else is new? Rather suspect that Karen is doing same for the gold council. Of no help to my investment decisions whatsoever.
  • Asn EJohn says, I also notice that diamonds prices are rising.
    Diamonds - the only investment with increasing demand annually.Diamonds grow from 8% to 15% per year, without drawdown or decline.
    I start to invest in diamonds on "Alfa Diamonds" platform and did about 25% in 2 months.
    Also, you have a great option to join a Groupe f several clients and to be able to take a very big diamond As a group and to sell it for the profit of 100% minimum.
  • Bart Please don't spam this board.
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