This is something that I have been casually watching.
In a nutshell, there is the worry that when people want to sell their bonds, there won't be buyers, which will force deeper discounts, which will induce more people to unload their bonds, which will end with dogs and cats sleeping together.
There is a growing consensus that the Fed is going to raise rates for the first time in forever next month. This could be the pin that pricks the bond bubble. Or, maybe the fear of a hike will be enough if people start sitting down before the music stops.
I wonder how big of a deal the CDS's on these bonds is. Big enough to repeat what happened to AIG?
As businesses have been issuing bonds to pay dividends or buy back stocks, I expect this will effect equities.
“I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody."
-James Carville
Who knows? No one knew how big of a deal it was to AIG until it was a big deal. The real scary thing is that the balance sheets of the biggest banks are out of control, fueled largely by bonds, short term loans to other financial institutions, and derivatives (CDS and CDO). Deutsche Bank, for example, is the largest bank in the world by balance sheet. Its total deposits are something like $400 billion. Its total balance sheet is about $55 trillion. So, yeah, it's a big deal, and a house of cards, but who knows when the wind will blow it over.