Bonds!

[Hektor]

4 minutes ago, Spekulatius said:

Thats the gist of it, Think Mar a Largo accord, We will extent maturity of your bond from 5 years to 100 years.  Sue us! We have the Supreme Court covered. LOL.  It might blow up the banking system though and create Japanese style zombie banks.

The professor on the call was making claims without any backing information, I felt. At best the maturity extension and all the other topics he mentioned felt like a broad stretch of imagination extending to something that occurred long ago in a different world. He definitely got his 30 seconds of limelight is how I felt, but I have no knowledge on the feasibility of these matters. I’ll track here to learn more.

 

“It might blow up the banking system though”
And insurance, and businesses that need those insurance, and the jobs that goes with them and so on, I guess 

[Blake Hampton]

6 minutes ago, Spekulatius said:

Thats the gist of it, Think Mar a Largo accord, We will extent maturity of your bond from 5 years to 100 years.  Sue us! We have the Supreme Court covered. LOL.  It might blow up the banking system though and create Japanese style zombie banks.

I don't see how this doesn't end in extreme capital flight. Seems to me this is the equivalent of nuking the dollar.

[dealraker]

For what it is worth Jeffrey Gundlach is in the camp of fearing the restructuring of longer Treasury bonds by simply lowering their coupon.   He says stay away from any longer US bonds with a high interest rate.  

 

My view is to forget thinking there are rules, standards, or even laws when you have our current guv.  Nothing of the past is necessarily relevant and neither are the traditional interpretations of contracts.    

Edited April 28, 2025 by dealraker

[John Hjorth]

1 hour ago, Hektor said:

I would love to hear what our bond people think about this?

 

The gist is “there is nothing stopping the treasury department from saying that we’re are extending the maturity date of your bond to a future day-month-year”

 

 

In practice, doing so, Hektor [ @Hektor ] is just a garden variety of a default.

 

When the creditors can't get their money back with interest at agreed time, and it has become evident for the creditors, that it actually is so, they get soft and in stead of to continue demanding overdue payment in full, they shift to asking : '... if I can't get full payment now, what can I then get, and when?'

 

And then starts a giant circus, with the overall aim at , - extraordinarily, naturally, but still defintive, transferring value from the creditors to the lender, by losses generated by the decisions of the lender being transferred to the creditors. Physical person, firm, company, municipality, region, state, contry - doesen't matter, it's basically all the same.

 

- - - o 0 o - - -

 

I remember just after GFC every material, large real estate company in Dubai, in some cases even the Kingdom was involved as shareholder, had hired a socalled CRO, a socalled Cheif Restructuring Officer, which sole job was to beat up creditors dearly, and look at what happened, Dubai fairly quickly came out on the other side of the total real estate blow-up caused by the GFC, shining more than ever.

 

That was when I was taught that not only do we need be be very aware of Itailian and Greek people wearing sandals, we really need to include arabs from Dubai, that when wearing sandals, they steal with both their fingers and their toes.

[Dinar]

1 hour ago, dealraker said:

For what it is worth Jeffrey Gundlach is in the camp of fearing the restructuring of longer Treasury bonds by simply lowering their coupon.   He says stay away from any longer US bonds with a high interest rate.  

 

My view is to forget thinking there are rules, standards, or even laws when you have our current guv.  Nothing of the past is necessarily relevant and neither are the traditional interpretations of contracts.    

Charlie, you may very well be right.  However, what is Gundlach's track record?  Is he any good?  

[Red Lion]

2 hours ago, dealraker said:

For what it is worth Jeffrey Gundlach is in the camp of fearing the restructuring of longer Treasury bonds by simply lowering their coupon.   He says stay away from any longer US bonds with a high interest rate.  

 

My view is to forget thinking there are rules, standards, or even laws when you have our current guv.  Nothing of the past is necessarily relevant and neither are the traditional interpretations of contracts.    

Why would they do this instead of just printing money? 

[dealraker]

6 hours ago, Red Lion said:

Why would they do this instead of just printing money? 

This is all out of my ability to even guess.  I am reading...reading what others with some credibility have to say.  

[Blake Hampton]

6 hours ago, Red Lion said:

Why would they do this instead of just printing money? 

 

It’s not the president’s decision to print money — that authority ultimately lies with the Federal Reserve.

 

Restructuring debt might be the only lever Trump could realistically pull. However, I’m not sure how it could be done in any meaningful way without triggering a massive financial crisis. I do agree with @dealraker though. I don’t think anything is off-limits with these guys.

[Blake Hampton]

This is probably the best insight you're gonna get on this topic:
 

 

[Spekulatius]

32 minutes ago, Hektor said:

The professor on the call was making claims without any backing information, I felt. At best the maturity extension and all the other topics he mentioned felt like a broad stretch of imagination extending to something that occurred long ago in a different world. He definitely got his 30 seconds of limelight is how I felt, but I have no knowledge on the feasibility of these matters. I’ll track here to learn more.

 

“It might blow up the banking system though”
And insurance, and businesses that need those insurance, and the jobs that goes with them and so on, I guess 

He is a law professor who actually looked at the legal framework for sovereign debt and

historical context. The US defaulted once on its  obligations to pay its debt in Gold in 1935 for example (Gold clause ) . So there is some precedence. Time are always different. Trump is different and has a disdain for bond holders and talked about defaulting on treasuries before.

https://constitutingamerica.org/gold-clause-cases-1935-guest-essayist-keith-e-whittington/

[Spekulatius]

7 hours ago, Red Lion said:

Why would they do this instead of just printing money? 

Because it affects different constituents. The MAGA crowd does not exactly look like they hold a lot of bonds. Also look at his track record of defaulting himself. If nothing else, it could be used as a negotiation tactics which goes along the lines of Mar a Largo accord.

 

What was news to me that a restructuring of bond maturities could possibly be done without triggering a default technically and without offering a higher coupon. Of course there would be lawsuits but he basically controls the Supreme Court as well.

Edited April 28, 2025 by Spekulatius

[Blake Hampton]

Bottom line is who knows what's in Trump's head regarding any of this. He has the economic understanding of a brick.

[thepupil]

One way to think about this is I think most of you all are person 4. and some of the more sanguine regarding risks to bonds are person 3. I'm basically person 3.5 or 3.75. Why is this relevant? Well we're talking about massive haircuts to "the bond market" which I htink of is agg. agg is about 45% treasuries, 25% MBS and the balance IG bonds. are the mortaged people of america going to get arbitrary extensions too? what about IG?

 

most people, particularly right now are short a long term fixed stream of USD payments. until you have a lot more in bonds than your mortgage, you aren't really taking huge risk by owning some bonds. you may have some opp costs relative to equities/bills/etc if duration does poorly, but there are of course scenarios where that goes well. 

 

even if you're debt free, have $10mm and just want to stay rich, isn't it worthwhile to have some deflation insurance / protection against "the big one"*.

 

Person 1: Owns $1mm home w/ no mortgage

Person 2: Owns $1mm home w/ a $500K mortgage. Has $500K cash in the bank. 

Person 3: Owns $1mm home w/ $500K of mortgage, $350K stocks $150K of bonds roughly matching the mortgage's duration

Person 4: Owns $1mm home w/ $500K mortgage. $500K of stocks

 

just used round numbers here...

 

*"the big one" = a big drawdown where the traditional stock/bond negative correlation holds. it's not the only kind of big one. the big one could be a different one like where the banking system collapses because the government extends the debt arbitraily. guns/gold/canned food, maybe even some bitcoin might be better for that. 

 

 

Edited April 28, 2025 by thepupil

[thepupil]

as for the actual thing being discussed here...I'm just some dude on the internet and by no means "credible" but given that we're at 2-3% real rates right now (2% = TIPS, 3% = truflation), the far easier path seems like what we've always done: financial repression and inflation. 

[Hektor]

11 hours ago, John Hjorth said:

When the creditors can't get their money back with interest at agreed time, and it has become evident for the creditors, that it actually is so, they get soft and in stead of to continue demanding overdue payment in full, they shift to asking : '... if I can't get full payment now, what can I then get, and when?'

 

And then starts a giant circus, with the overall aim at , - extraordinarily, naturally, but still defintive, transferring value from the creditors to the lender, by losses generated by the decisions of the lender being transferred to the creditors. Physical person, firm, company, municipality, region, state, contry - doesen't matter, it's basically all the same.

 

- - - o 0 o - - -

 

I remember just after GFC every material, large real estate company in Dubai, in some cases even the Kingdom was involved as shareholder, had hired a socalled CRO, a socalled Cheif Restructuring Officer, which sole job was to beat up creditors dearly, and look at what happened, Dubai fairly quickly came out on the other side of the total real estate blow-up caused by the GFC, shining more than ever.

Thanks @John Hjorth. I understand this. I thought Dubai restructured debt of some of the entities they controlled, not necessarily the sovereign debt. I could be wrong. And there are countries that do everything they can to avoid a default (e.g. India and the 1991 economic crisis). It's hard to believe USA will take the default route.

 

11 hours ago, John Hjorth said:

That was when I was taught that not only do we need be be very aware of Itailian and Greek people wearing sandals, we really need to include arabs from Dubai, that when wearing sandals, they steal with both their fingers and their toes.

 Hilarious. I guess that's the consequence of playing loose with reputation. I am sure any creditor worth their name would think twice about lending to the Dubai entities. I wonder if there were any real consequence for those entities.

[Hektor]

2 hours ago, Spekulatius said:

He is a law professor who actually looked at the legal framework for sovereign debt and

historical context. The US defaulted once on its  obligations to pay its debt in Gold in 1935 for example (Gold clause ) . So there is some precedence. Time are always different. Trump is different and has a disdain for bond holders and talked about defaulting on treasuries before.

https://constitutingamerica.org/gold-clause-cases-1935-guest-essayist-keith-e-whittington/

But, it's not the POTUS's place to decide to default. That's with US Congress, if I am not wrong.

[Red Lion]

2 hours ago, Blake Hampton said:

It’s not the president’s decision to print money — that authority ultimately lies with the Federal Reserve.

With congress actually. 

[Red Lion]

3 hours ago, dealraker said:

This is all out of my ability to even guess.  I am reading...reading what others with some credibility have to say.  

Fair enough. Crazy times we live in. I feel like unilaterally reducing interest rate on a contract would be a government taking. Whereas printing money would be in the domain of congress. But I’m not a law professor, and really out of my ability to guess too. 

[TwoCitiesCapital]

20 hours ago, Spekulatius said:

Thats the gist of it, Think Mar a Largo accord, We will extent maturity of your bond from 5 years to 100 years.  Sue us! We have the Supreme Court covered. LOL.  It might blow up the banking system though and create Japanese style zombie banks.

 

You may be right that investors have no recourse. But they also don't have to buy anymore. Shutting down U.S. capital markets would be disastrous for the U.S. government running the deficits its running even if it defers maturities and lowers interest expenses. 

 

At that point, the U.S. isn't the cleanest dirty-shirt. Japan hasn't screwed bondholders like that. Europe hasn't screwed bondholders like that. CHINA hasn't screwed bond holders like that. Incremental flows will find new homes elsewhere and the USD will be trashed. 

 

20 hours ago, Blake Hampton said:

I don't see how this doesn't end in extreme capital flight. Seems to me this is the equivalent of nuking the dollar.

 

That's exactly how it ends. We're not the reserve currency by default. We're the reserve currency because the rest of the world allows us to be.

 

We no longer have the military might to enforce that the whole globe use our currency for global trade. In the 70s we had the best military and the best balance sheet to handle that sort of thing. Now? We're here by the good graces of others and inertia of wanting to rethink and redesign a global financial system across varying parties with varying objectives. 

 

We could try sanctioning folks into compliance - but I expect that just drives them further away from USD/US Banking System integration than make us any new friends. 

 

 

18 hours ago, Dinar said:

Charlie, you may very well be right.  However, what is Gundlach's track record?  Is he any good?  

 

He's a fantastic bond manager. He's been quite wrong with his track record on predictions though - both of economic calamity and recessions. Part of his job though is to think of risks no one else sees or are considering. So I don't blame him for seeing  a boogey man around every corner - as long as he can manage around those risks and still have reasonably good results.

 

8 hours ago, thepupil said:

One way to think about this is I think most of you all are person 4. and some of the more sanguine regarding risks to bonds are person 3. I'm basically person 3.5 or 3.75. Why is this relevant? Well we're talking about massive haircuts to "the bond market" which I htink of is agg. agg is about 45% treasuries, 25% MBS and the balance IG bonds. are the mortaged people of america going to get arbitrary extensions too? what about IG?

 

Probably not. US government doesn't have the authority to arbitrarily renegotiate OTHER people's contracts and default on their behalf. You'd probably see IG corporates and mortgages trade UNDER treasuries as treasuries would likely no longer be the risk-free benchmark - agency mortgages would be.

 

 

7 hours ago, thepupil said:

as for the actual thing being discussed here...I'm just some dude on the internet and by no means "credible" but given that we're at 2-3% real rates right now (2% = TIPS, 3% = truflation), the far easier path seems like what we've always done: financial repression and inflation. 

+1

 

No reason to outright default when you can implicitly default and everyone is ok with it....

 

Another year or two of 10+% inflation with interest rates at single digits and you've accomplished a huge amount of deleveraging at the Federal level (and created a huge amount of financial pain for everyone else). 

Edited April 28, 2025 by TwoCitiesCapital

[Spekulatius]

9 hours ago, Hektor said:

But, it's not the POTUS's place to decide to default. That's with US Congress, if I am not wrong.

Congress has been sidelined with exec orders. Trump just need to fabricate another national emergency and its off the races.

 

While I think inflation would be more straightforward that has been tried already and the populace is highly sensitized now to inflation, so that will make it politically harder to do without getting destroyed at elections. Also, I think everything that doesn’t involve some sort of deal just doesn’t work for Trump.

 

Who knows what is going to happen, but the interesting thing for me is that an actual legal framework can be conferred that does not invoke a technical default. We also know that the think tank around Trump does want the Mar a Largo thing or some variation of it.

[cubsfan]

33 minutes ago, Spekulatius said:

Congress has been sidelined with exec orders. Trump just need to fabricate another national emergency and its off the races.

 

Actually, since Congress has refused to do their job for years - executive orders is the only way to get anything done anymore.  Border security is the perfect example - it's a stunning success only due to POTUS - since Congress has punted on it for years. 

[Castanza]

https://podcasts.apple.com/us/podcast/what-we-learned-about-treasuries-on-the-night-of-april-8/id1056200096?i=1000705233459

 

Turns out nobody was dumping US bonds 

[Hektor]

13 hours ago, Spekulatius said:

Congress has been sidelined with exec orders.

I am not sure it's that straight forward. It's pretty easy to delay/block/overturn a exec order. If an exec order were to upend the boat, I doubt Congress will be found sitting on its hands.

[gfp]

27 minutes ago, Castanza said:

https://podcasts.apple.com/us/podcast/what-we-learned-about-treasuries-on-the-night-of-april-8/id1056200096?i=1000705233459

 

Turns out nobody was dumping US bonds 

 

Good interview - thanks for posting that

[Patmo]

Russia and the Project 2025 folks have won. It's too late now, you guys are fucked. The only thing I hope for is that you'll still have enough grip on reality for this clown show to be denied a "3rd mandate", otherwise it's not just you Muricans, we'll all be fucked.