The Real Libor Scandal » Counterpunch: Tells the Facts, Names the Names
The question is, why do investors purchase long term bonds, which pay
less than the rate of inflation, from governments whose debt is rising
as a share of GDP? One might think that investors would understand that
they are losing money and sell the bonds, thus lowering their price and
raising the interest rate.
Why isn’t this happening?
Despite the negative interest rate, investors have been making capital
gains from their Treasury bond holdings, because the prices were rising
as interest rates were pushed lower.
What was pushing the interest rates lower?
The answer is even clearer now. Wall Street has been selling huge
amounts of interest rate swaps, essentially a way of shorting interest
rates and driving them down. Thus, causing bond prices to rise.
Unless bond prices can continue to rise as new debt is issued, the era
of rigged bond prices might be drawing to an end. It would seem to be
only a matter of time before the bond bubble bursts.
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