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Deutsche Bank blockbuster warning! A $8 trillion bubble burst

Recently the us stock market keep going up and refresh record, debate about whether U.S. stocks in the bubble become warm rise, also caused financial officials, including federal reserve chairman yellen of attention. Top international investment bank, deutsche bank has warned, however, compared to the stock market, another key markets more attention. More investors facing a $8 trillion financial market bubble.

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According to Deutsche Bank, Deutsche Bank chief economist Torsten Slok international, after eight years of the bubble are linked to the outbreak of the financial crisis is related to the government and corporate bonds yield remains negative.

In Slok opinion, this is not normal, is also a global central bank after the recession to the economy of the injection amount of stimulus measures "sequela", part of the reason is to purchase a large amount of government debt. For security reasons, investors to buy the bonds, at the same time, some institutions such as Banks are required to buy the bonds.

All these requirements raised the price of bonds and bond yields to Japan and some European countries fell below zero.

Slok in a report released on October 13, wrote: "the $8 trillion of negative income assets forcing investors around the world has entered a variety of other asset classes, such as mortgages, high-yield bonds, stocks, even emerging market fixed income and equity."

Through several rounds of bond purchases, known as quantitative easing (QE), in order to boost the economy after the financial crisis and stabilize the market, the fed's balance sheet from August 2007 nearly $870 billion expansion to the current nearly $4.5 trillion.
Now, the fed is trying to gradually reduce its balance sheet. But it will do little to prick bubbles.

Slok said: "the real test will be the figure of the red areas becomes black." And this may cause adverse effects for risky assets stock.


(global bond market scale)


He added: "the fear is that when the risk-free interest rate increases, then the credit spreads will expand and stock performance will be poor, because investors will be leaving risky assets and buy high yields on government bonds. From a financial point of view, if the risk-free interest rates rise, then why do I want to buy risky assets?"


However, to reduce the proportion of government bonds yield negative aspect, the fed will play a role.
Slok pointed out that if the United States began to higher inflation, the fed to raise interest rates will tend to be faster, it will mean higher interest rates in Europe and Japan will be.

Fed chairman Yellen (Janet Yellen) said on Sunday that although inflation is restrained, but given the U.S. economy remain strong and labor market strength, the fed needs to continue to slowly raise interest rates.
Yellen said: "we will keep a close eye on inflation over the next few months, my best guess is that the weak data will not continue."

Yellen and key decision-making officials have recently made it clear that, given the overall economic strength and the Labour market continues to tighten, they are expected to continue to slowly raise interest rates.

The federal reserve has raised interest rates four times since the end of 2015. At present, the fed will raise interest rates again this year is expected, three times in the next year. The fed and policy meeting twice this year, in November and December, respectively. Investors now it is expected to raise interest rates in December.

However, investors do not expect higher inflation, which mainly from the scale of negative rates of bonds they hold.

Slok thinks, it is important that the central bank exit is only just beginning, once inflation really began to climb, so compared to check-in "loose monetary Hotel (Hotel Easy Money)", to deal with the difficulty of the "check-out" is much larger.