Business

US bonds take 13% haircut

There will be no fireworks for bond investors when they open up their second-quarter statements in early July.

That’s because the boom-and-doom I have warned about has appeared in a bond bubble bust.

The most actively traded Treasury bond, ETF (TLT), is down a staggering 12.6 percent since Federal Reserve Chairman Ben Bernanke started his tapering talk in May.

With just one week of trading remaining in the quarter, this will go down as one of the worst routs ever.

Through no fault of their own, American families will now be faced with steep losses, engineered by the Federal Reserve.

The Fed preached all of the benefits of its artificial and excessive bond-buying binge — trillions of dollars were required just to keep this dog of an economy from rolling over — but the Fed never highlighted the specific risks to bond buyers.

To a certain degree, this is essentially a zero-sum game in which small investors are about to find out they are losers again. The banks benefited hugely from the artificial prices the Fed bid for Treasury bonds, and the Fed itself has made a massive profit by rigging the bond market.

Many of the big sharks and funds that had the flexibility to do it unloaded their bonds and are now long gone. The Fed has even now openly said that it may hold onto its mortgage bonds until maturity and possibly some Treasuries, too.

So at some point they may have temporary “mark to market” (statement) losses, but they will continue to make money, billions and billions.

However, the unassuming middle-class Americans who have endured earning next to nothing on their savings for almost five years now thanks to Bernanke’s strategy are facing massive losses from supposedly safe bond funds.

By the time small investors figure it out, they could be down 20 percent or more, which would be the first time that the Federal Reserve has caused losses for ordinary citizens/investors while making a profit for itself.