I think what the writer of this blog just described is a bond bubble. Rates currently are so low that corporations have wisely decided to issue as much debt as the market will bear. Yield-hungry Investors are gladly buying all of these issues.
How big can this bubble inflate? I’d say that it has a ways to go. The 10yr auction yesterday was an August anomaly. Yields will hover in the current range for awhile longer but will drop in response to the next catastrophe. Only after that drop will this bubble have run its course.
I’d hate to be holding bonds when that happens. In a matter of days, all par bonds will become discount bonds with the resultant deleveraging effect driving a nasty panic with further losses.
Additionally, one of the largest profit centers for the TBTF banks is the fixed income department. These firms will have to face up to losing an entire profit center for a few years because all of the extra issuance and trading that has occurred today due to ZIRP is less issuance and trading tomorrow after the bubble bursts.