The single most important item for investors to understand is collateral. Specifically, how there is a huge shortage of high-grade collateral backstopping the trillions in derivatives trades owned by the TBTFs
The senior most assets backstopping the $600 trillion derivatives market are SOVEREIGN BONDS: US Treasuries, Japanese Government Bonds, German Bunds.
By keeping interest rates near zero, and pumping over $10 trillion into the financial system since 2007, the world’s Central Banks have forced investors to misprice the most prized collateral backstopping the entire derivatives system: SOVEREIGN BONDS.
SO what happens when the current bond bubble bursts and we begin to see bonds falling and yields rising?