Guess What Happened The Last Time Bond Yields Crashed Like This?…

If a major financial crisis was approaching, we would expect to see the “smart money” getting out of stocks and pouring into government bonds that are traditionally considered to be “safe” during a crisis.  This is called a “flight to safety” or a “flight to quality“.  In the past, when there has been a “flight to quality” we have seen yields for German government bonds and U.S. government bonds go way down.  As you will see below, this is exactly what we witnessed during the financial crisis of 2008.  U.S. and German bond yields plummeted as money from the stock market was dumped into bonds at a staggering pace.  Well, it is starting to happen again.  In recent months we have seen U.S. and German bond yields begin to plummet as the “smart money” moves out of the stock market.  So is this another sign that we are on the precipice of a significant financial panic?

Back in 2008, German bonds actually began to plunge well before U.S. bonds did.  Does that mean that European money is “smarter” than U.S. money?  That would certainly be a very interesting theory to explore.  As you can see from the chart below, the yield on 10 year German bonds started to fall significantly during the summer of 2008 – several months before the stock market crash in the fall…

German Bond Yields 2007 And 2008

So what are German bonds doing today?

As you can see from this next chart, the yield on 10 year German bonds has been steadily falling since the beginning of last year.  At this point, the yield on 10 year German bonds is just barely above zero…

German Bond Yields 2013 To Today

And amazingly, most German bonds that have a maturity of less than 10 years actually have a negative yield right now.  That means that investors are going to get back less money than they invest.  This is how bizarre the financial markets have become.  The “smart money” is so concerned about the “safety” of their investments that they are actually willing to accept negative yields.  I don’t know why anyone would ever put their money into investments that have a negative yield, but it is actually happening.  The following comes from Yahoo

The world’s scarcest resource right now is safe yield, and the shortage is getting more extreme. Most German government bonds that mature in less than 10 years now have negative yields – part of some $2 trillion worth of paper with yields below zero.

This is what happens when the European Central Bank begins a trillion-euro bond-buying binge with rates already miniscule.

Yesterday, ECB boss Mario Draghi – unfazed by the protest stunt at his press conference – reaffirmed his plan to keep bidding for paper that yields more than -0.2% – that’s minus 0.2%.

Yes, the ECB is driving a lot of this, but it is still truly bizarre.

So what about the United States?

Well, first let’s take a look at what happened back in 2008.  In the chart below, you can see the “flight to safety” that took place in late 2008 as investors started to panic…

US Bond Yield 2007 And 2008

And we have started to witness a similar thing happen in recent months.  The yield on 10 year U.S. Treasuries has plummeted as investors have looked for safety.  This is exactly the kind of chart that we would expect to see if a financial crisis was brewing…

US 10 Year Yield 2014 And 2015

What makes all of this far more compelling is the fact that so many other patterns that we have witnessed just prior to past financial crashes are happening once again.

Yes, there are other potential explanations for why bond yields have been going down.  But when you add this to all of the other pieces of evidence that a new financial crisis is rapidly approaching, quite a compelling case emerges.

For those that do not follow my website regularly, I encourage you to check out the following articles to get an idea of what I am talking about…

-“Guess What Happened The Last Time The Price Of Oil Crashed Like This?…

-“Not Just Oil: Guess What Happened The Last Time Commodity Prices Crashed Like This?…

-“10 Key Events That Preceded The Last Financial Crisis That Are Happening Again RIGHT NOW

-“Guess What Happened The Last Time The U.S. Dollar Skyrocketed In Value Like This?…

-“7 Signs That A Stock Market Peak Is Happening Right Now

-“Guess What Happened The Last Two Times The S&P 500 Was Up More Than 200% In Six Years?

Of course no two financial crashes ever look exactly the same.

The crisis that we are moving toward is not going to be precisely like the crisis of 2008.

But there are similarities and patterns that we can look for.  When things start to get bad, investors act in predictable ways.  And so many of the things that we are watching right now are just what we would expect to see in the lead up to a major financial crisis.

Sadly, most people are not willing to learn from history.  Even though it is glaringly apparent that we are in a historic financial bubble, most investors on Wall Street cannot see it because they do not want to see it.  They want to believe that somehow “things are different this time” and that stocks will just continue to go up indefinitely so that they can keep making lots and lots of money.

And despite what you may think, I actually want this bubble to continue for as long as possible.  Despite all of our problems, life is still relatively good in America today – at least compared to what is coming.

I like to refer to this next crisis as our “third strike”.

Back in 2000 and 2001, the dotcom bubble burst and we experienced a painful recession, but we didn’t learn any lessons.  That was strike number one.

Then came the financial crash of 2008 and the worst economic downturn since the Great Depression.  But we didn’t learn any lessons from that either.  Instead, we just reinflated the same old financial bubbles and kept on making the exact same mistakes as before.  That was strike number two.

This next financial crisis will be strike number three.  After this next crisis, I don’t believe that there will ever be a return to “normal” for the United States.  I believe that this is going to be the crisis that unleashes hell in our nation.

So no, I am not eager for that to come.  Even though there is no way that this bubble of debt-fueled false prosperity can last indefinitely, I would like for it to last at least a little while longer.

Because what comes after it is going to be truly terrible.

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About the Author: The Economic Collapse Blog

  • g13man

    a republican is on John Dillies favorite list , wow, but yet he still maintains we twist what he says, lol . maybe he should stop ranting raving and drooling and read what HE HIMSELF WRITES . LOL

  • JohnDille

    I AM A VIET NAM ERA VETERAN… THOUGH FORTUNATELY FOR ME, THE CLOSEST I EVER CAME TO VIET NAM WAS TO SEE IT’S COASTLINE… A COUPLE OF TIMES… FROM THE DECK OF AN AIRCRAFT CARRIER!!! AS FOR LBJ…. HE HAD HIS FLAWS… BUT THE ONLY TWO US PRESDENTS THAT I HOLD IN HIGHER REGARD WERE FRANKLIN ROOSVELT AND ABRAHAM LINCOLN!!!

  • g13man

    ouch ,he went back to being ignorant ! of course that was expected since he thinks the debt is all interest when it is all borrowing needlessly that starts that interest . ahhh the dumb Keynesian dems

  • JohnDille

    YOU CAN TWIST MY WORDS ALL YOU WANT…. OOPS…. YOU ARE A RIGHT WINGERS, SO YOU WILL TWIST MY WORDS… AND EVERYONE ELSES WORDS, AS WELL…. BUT I SOLIDLY SUPPORT THE FED… EVEN WHEN I DISAGREE WITH SOME OF THEIR POLICIES AND DECISIONS…. JUST AS I OFTEN DISAGREE WITH DEMOCRATIC POLICIES AND DECISIONS…. BUT AM STILL A DEMOCRAT!!!

  • Ron gjoraas

    Sorry John. I don’t know how to convey to you
    that you misread me. I taught high school science for ten years, worked in science and
    medicine for 22 years and currently serve as an alternate on our board of mental health.
    Should note that I served 6 consecutive years
    on the mental health hearing board. Soooooo
    don’t really feel suicidal. I come from the era
    of Vietnam Nam. Let’t see- oh! just remembered who the president was. Hummmm, initials were LBJ. Now, I need to
    put a label on him, otherwise I can’t even talk.
    Forget it. Will let it remain a mystery. Keep on
    trucken John. I do enjoy human behavior and
    enjoy your thought process. Talk later.

  • g13man

    and if we keep telling the truth , even John D changes from being and saying the fed is good to , well below , [or he is just having a minor delusion of truth before he reverts to , well himself ,lol ] although he does it to plug at the pubs]

  • Craig Silver

    Well Said!

  • JohnDille

    ISN’T IT JUST SO DEPRESSING TO YOU THAT LIBERALS AND OTHER REAL AMERICANS HAVE OPINIONS THAT RUN COUNTER TO THE RIGHT WING NONSENSE THAT YOU HAVE BEEN BRAIN WASHED WITH?? YOU SHOULD CHECK YOUR BLOOD PRESSURE AND GET SOME SLEEP…. BUT IF YOU STILL FEEL SUICIDAL… BY ALL MEANS…. JUMP!!! OH… WAIT… YOU ARE REPUBLICAN… SO GO AHEAD AND USE ONE OF YOUR MANY GUNS…. BUT FOR CRYING OUT LOUD, DON’T KILL A BUNCH OF SCHOOL KIDS FIRST! THAT IS JUST SO RIGHT WING!!!

  • JohnDille

    ALMOST 85% OF TOTAL FEDERAL DEBT IS THE RESULT OF GROSS INTEREST PAID BY THE FEDERAL GOVERNMENT! I TAKE IT THAT YOU ARE IN FAVOR OF CONTINUING TO INCREASE FEDERAL DEBT TO BRIBE THE RICH??? THAT IS JUST SO REPUBLICAN OF YOU!!!

  • g13man

    Stock pile cans , bags/boxes of food and heirloom seeds …

    [but i am crazy and vote third party & the above ]

  • g13man

    small technicality , there is no money ,
    it is a Federal Reserve Note
    The USA gave up its money to the banking cartel in 1913
    violating the USA constitution !!!

    and started the taxing of the average , We the People

  • Morris

    Doesn’t it get depressing feeling so angry about all
    these economic issues that are beyond your control?
    Check your blood pressure, what about sleep depravation, anxiety, uncontrolled cocky pride and
    overall hopelessness! Suicide ever cross your mind?
    Your attitude about everything is the only thing YOU
    have control of. Blame political parties, individuals,
    ideologies and your neighbor for your ugly disposition. See if it adds ONE more day to your life!
    You are a good example of sad sack. I will remember
    you in my daily prayers even though there appears to
    be no evidence of a faith component in your life.

  • Craig Silver

    Everything will be fine! Just hang on to those stocks, bonds, and fiat currencies, especially those US dollars. And most of all keep voting for those wonderful Demo-rats and Republi-cats. Sorry, your only allowed two choices. And DO NOT do like those crazy foreigners who buy Gold, don’t eat GMO foods, and don’t fluoridate their water, crazies!

  • Mark

    As usual John your logic is non sense. The government will never save money because number one it is not their money, its the taxpayers money. All this has been pissed away for years by the government and all their big socialist programs. A result of this is high inflation, higher unemployment, jobs going overseas, and higher income disparity between rich and poor. You blame the wrong people for this and need to go back and take an econ 101 course. You continue to blame Republicans but there are actually more rich Democrats and they own many companies and assets in this economy.
    Oh, and if we did not have the government and Federal reserve destroying our economy the inflation rate would be lower which requires less borrowing so I guess those rich Democrats would not be getting richer off everyone else either. Many on Wall Street supported the Obummer so they could get bailed out with millions in tax revenue. You really do not know what you are talking about and are lost.
    I do agree that the rich use some wealth to lobby on Washington and that is wrong but the rich are both Republican and Democrat.

  • B.D.

    Constantly crying ‘the sky is falling’ does no more good than it did for Chicken Little. If you want to tell us something useful, then outline the ways an investor can protect themself from the melt down you’re so sure is afoot.

  • JohnDille

    JUST THINK OF ALL THE TRILLIONS OF DOLLARS EVERY YEAR THAT IS NO LONGER GOING TO THE RICH BOND AND DEBT HOLDERS!!! CORPORATIONS AND BUSINESSES AND CONSUMERS AND EVEN THE GOVERNMENT ARE ALL SAVING MASSIVE AMOUNTS OF MONEY BECAUSE THEY NO LONGER HAVE TO SUPPORT ALL THOSE GREEDY RICH PARASITES!!! POOR REPUBLICANS ARE BESIDES THEMSELVES WITH ANGER…. BECAUSE INTEREST ON DEBT IS THE MAJOR SOURCE OF INCOME FOR THEIR SUPER RICH SUPPORTERS…. EVEN MORE THAN THE MONEY THEY SAVE BY PAYING LOW WAGES AND HIRING ILLEGALS AND SENDING JOBS TO CHINA,,,, ETC ETC ETC.!!!