Bond Bubble?

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garlandwhizzer
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Bond Bubble?

Post by garlandwhizzer »

Here's the link to a piece suggesting a worldwide bond bubble <www.marketwatch.com/story/beware-the-en ... 2014-08-29>
Many have been calling for bonds to suffer for years and yet it hasn't happened. Is this just another cry that the sky is falling or is there something more to it?
Would be interested in the Bogleheads input on this piece.


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ogd
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Re: Bond Bubble?

Post by ogd »

Well if you stay away from junk bonds and bonds of countries that don't control their currency (or any international bonds), and keep duration to intermediate, what's the worst that can happen as a result of this "bubble"? Rates rise to 5%, you keep making the present 2% for another 5 years, then you make 5% going forward? Bring it on! If you're a fixed income investor you should welcome the prospect of higher rates. The ones that don't are the market timers who think they can skip the initial pain, but some of them have instead been skipping good bond returns for 3-4 years now.

Also, if you buy into the main thrust of this article which is about credit risk, your safe bonds should be even more desirable when that aspect of the bubble blows.

I know what you're gonna say, the worst that can happen is inflation, but nothing in that article or in the "historically low yields" rationale has much to do with inflation. IMHO, the powers that be are overly concerned with inflation and it's been hurting them, particularly in Europe.

As for the pricing of credit risk: when it comes to corporations, I trust the vetting of the market as always. Yes it's sort of being forced into them for yield, but all along the way it has Treasuries as an alternative. When it comes to foreign countries, though, I reserve judgment -- in many, like Japan, there are hordes of local depositors who are unaccustomed to any other investments and who can overwhelm the market's pricing by sheer size. So I stay away.
Tigermoose
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Re: Bond Bubble?

Post by Tigermoose »

The author is Chris Martenson, who is always talking up peak this, peak that, bubble this, bubble that. His predictions have pretty much all failed. He is a doom and gloomer.
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Tigermoose
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Re: Bond Bubble?

Post by Tigermoose »

That said, I keep the majority of my fixed income in a Stable Value Fund and the few treasuries I have are in the Vanguard Total Bond Market and TIPs. I see no reason to change that up until rates go up and the yield from intermediate treasures exceeds the yield I receive from my SVF.
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technovelist
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Re: Bond Bubble?

Post by technovelist »

I'm still waiting to see what happens if the Fed ever tries to shrink its balance sheet, even if by just letting the bonds mature.
In theory, theory and practice are identical. In practice, they often differ.
Tigermoose
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Re: Bond Bubble?

Post by Tigermoose »

technovelist wrote:I'm still waiting to see what happens if the Fed ever tries to shrink its balance sheet, even if by just letting the bonds mature.
Yea. I watched Martenson's crash course video on Quantitative Easing, and he makes the mistake (intentionally?) of saying the Fed will have to try and sell its bonds on the open market - which will cause deflation in all asset prices. Like you said, the Fed will just let them mature. That's where he crosses the line from an analysis to scaring people for an agenda.
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jdb
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Re: Bond Bubble?

Post by jdb »

If only I had a dollar for every time a poster on this site in past five years has suggested bond bubble and avoiding longer term bonds or going short term. Wait, I have even done better than that, every time saw these posts in last 5 years my contrarian nature kicked in and did more allocation to longer term maturities. So thanks.
richard
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Re: Bond Bubble?

Post by richard »

technovelist wrote:I'm still waiting to see what happens if the Fed ever tries to shrink its balance sheet, even if by just letting the bonds mature.
Look at what happened to interest rates after the Fed starting cutting QE.
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Phineas J. Whoopee
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Re: Bond Bubble?

Post by Phineas J. Whoopee »

There's a published claim that there's a bubble bubble, because of recency bias. Nobody knows, but saying I don't know doesn't sell many Ford F-150s. *
PJW

* Just as the pay of most working musicians is based on their proven ability to sell beer.
technovelist
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Re: Bond Bubble?

Post by technovelist »

jdb wrote:If only I had a dollar for every time a poster on this site in past five years has suggested bond bubble and avoiding longer term bonds or going short term. Wait, I have even done better than that, every time saw these posts in last 5 years my contrarian nature kicked in and did more allocation to longer term maturities. So thanks.
If only I had a dollar for every dollar I have, I'd have over... 100 dollars!
In theory, theory and practice are identical. In practice, they often differ.
gerrym51
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Re: Bond Bubble?

Post by gerrym51 »

a year ago bonds were sinking-now it's a bubble-what can you say :mrgreen:
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