Pay to loan is now a standard

Negative-yielding government debt has risen above $10tn for the first time, enveloping an increasingly large part of the financial markets after being fuelled by central bank stimulus and a voracious investor appetite for sovereign paper.
The amount of sovereign debt trading with a sub-zero yield climbed 5 per cent in May from a month earlier to $10.4tn, buoyed by rising bond prices in Italy, Japan, Germany and France, according to rating agency Fitch.
The ascent of the negative yield, which first affected only the shortest maturing notes from highly rated sovereigns, has encompassed seven-year German Bunds and 10-year Japanese government bonds as both the European Central Bank and Bank of Japan have cut benchmark interest rates and launched bond-buying programmes.
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Negative rates have not been confined to the sovereign debt market. Corporate bonds with a negative yield have climbed to $380bn, according to Tradeweb.
“You have central banks which have gone through the looking glass and gone through . . . zero that many people thought was unbreakable,” said Sameer Samana, a strategist with Wells Fargo Investment Institute.

U.S. is an island in a sea of negative

the US accounts for almost 60% of all positive yielding debt and 89% of the positive yielding debt which has a tenor less than 1YR (Figure 4). Also, US debt accounts for 74% of the positive yielding G10 debt in the 1 – 5YR sector.

recessionary odds

The probability of a recession occuring within the next 12 months has never been higher during the current economic recovery. This is according to the economists at JPMorgan.
"Our preferred macroeconomic indicator of the probability that a recession begins within 12 months has moved up from 30% on May 5 to 34% last week to 36% today," JPMorgan's Jesse Edgerton wrote. "This marks the second consecutive week that the tracker has reached a new high for the expansion."

Puerto Rico could say "Nyet"

An audit report published on Thursday suggests that debt-laden Puerto Rico may be able to void some of its borrowing because politicians exceeded constitutional debt limits and their own authority.
The report, shared with MarketWatch, states that some of Puerto Rico’s debt may have been issued illegally, allowing the government to potentially declare the bonds invalid and courts to then decide that creditors’ claims are unenforceable. The scope of the audit report, issued by the island’s Public Credit Comprehensive Audit Commission, covers the two most recent full-faith-and-credit debt issues of the commonwealth: Puerto Rico’s 2014 $3.5 billion general-obligation bond offering and a $900 million issuance in 2015 of Tax Refund Anticipation Notes to a syndicate of banks led by J.P Morgan JPM, -1.49% .
Money for those debt payments is not in the commonwealth’s proposed budget, either. On Tuesday Puerto Rico’s governor, Alejandro García Padilla, sent a proposed 2016-17 budget to the island’s legislature that provides for only $209 million of the $ 1.4 billion of current debt-service cost. As García Padilla told reporters at a news conference: “This is simple: either we pay Wall Street or we pay Puerto Ricans. If the legislature decides we pay Wall Street more, well, each has his responsibility. I will continue defending Puerto Ricans. Money I send to Wall Street, I do not have to provide services here.”

A snake swallowing its tail

Japan for years has been renowned for having the world’s largest government debt load. No longer. That’s if you consider how the effective public borrowing burden is plunging – by one estimate as much as the equivalent of 15 percentage points of GDP a year, putting it on track toward a more manageable level. Accounting for the Bank of Japan’s unprecedented government bond buying from private investors, which some economists call “monetization” of the debt, alters the picture. Though the bond liabilities remain on the government’s balance sheet, because they aren’t held by the private sector any more they’re effectively irrelevant, according to a number of analysts looking at the shift. “Japan is the country where public debt in private hands is falling the fastest anywhere,” said Martin Schulz at Fujitsu Research Institute in Tokyo.
While Japan’s estimated gross government debt is now over twice the size of the economy, according to Schulz’s calculations using BOJ data, the shuffle of holdings from private actors like banks and households to the central bank is having a big impact. It means debt in private hands will fall to about 100% of GDP in two to three years, from 177% just before Prime Minister Shinzo Abe took power in late 2012, he estimates. It’s not like Japan is slowing down on borrowing. Abe’s administration is now laying the groundwork for another burst of fiscal stimulus, which could be funded by selling bonds. He also announced Wednesday a delay to a sales tax hike planned for April 2017, rebuffing fiscal hawks who argued it was vital to raise revenue.

"Just getting by"

In the United States, nearly one-third of adults, about 76 million people, are either “struggling to get by” or “just getting by,” according to the third annual survey of households by the Federal Reserve Board....
Nearly 70 percent of adults said they were “living comfortably” or “doing O.K.” — up a bit from previous years — but nearly half of all respondents said they could not cover an unexpected expense of $400, or could do so only by selling something or borrowing money.
Americans seeking a path upward through education are staggering under a load of debt. The median debt load for someone with a bachelor’s degree was $19,162. For a master’s, it was $36,000, and for a professional degree, $100,000.

This is seriously messed up

Hundreds lined up Friday for a Donald Trump rally in far Northern California, but the atmosphere in the city of Redding was far calmer than in San Jose the night before when protesters pounced on Trump supporters, throwing punches and eggs.
In San Jose, a dozen or more people were hit and car windows were broken Thursday night. Trump hats grabbed from supporters were set on fire on the ground. At least one woman was pelted with an egg.
Police stood their ground at first but after about 90 minutes moved into the remaining crowd to break it up and make arrests. At least four people were taken into custody, though police didn’t release total arrest figures Thursday night. One officer was assaulted, police Sgt. Enrique Garcia said.
There were no immediate reports of serious injuries and no major property damage, police said.
Thursday night’s crowd, which had numbered over 300 just after the rally, thinned significantly as the night went on, but those who remained near the San Jose Convention Center were rowdy and angry.
Some banged on the cars of Trump supporters as they left the rally and chased after those on foot.