What's causing the prices of global bonds to drop currently?

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YRT70
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What's causing the prices of global bonds to drop currently?

Post by YRT70 » Wed Sep 11, 2019 7:16 am

After global bonds had a nice run this year I noticed a current price drop of about 2% this week. I searched for causes like a rise in interest rates but haven't found anything. Does anyone know what could be causing this?

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MotoTrojan
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Re: What's causing the prices of global bonds to drop currently?

Post by MotoTrojan » Wed Sep 11, 2019 7:27 am

What caused them to go up before hand? These are not really answerable questions; sure there are clear catalysts that make large single-day moves happen but overall it is a highly complex system. Equities seem promising, so people are selling bonds and buying stocks. US bonds have better yields, so people are selling global bonds and buying treasuries. The new Iphone 11 looks awesome, so people are selling bonds and buying new gadgets.

Realistically it is tied to a perception of economic health, so the trade war potentially smoothing over could also cause prices to drop, but there isn't usually a clear answer driven directly by someone (such as the Fed or ECB changing their short-term borrowing rates, or buying/selling bonds).

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nisiprius
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Re: What's causing the prices of global bonds to drop currently?

Post by nisiprius » Wed Sep 11, 2019 7:56 am

Nassim Nicholas Taleb and Jeremy Siegel have independently given examples of the folly of looking for explanations for short-term price movements. People want reasons, people invent reasons, and the press reports reasons. One might as well either shrug and say "there are no reasons." If you can't accept that, then how about "those who know don't talk, and those who talk don't know."

In 'The Black Swan', Nassim Nicholas Taleb wrote:
One day in December 2003, when Saddam Hussein was captured, Bloomberg News flashed the following headline at 13:01: U.S. Treasuries Rise; Hussein Capture May Not Curb Terrorism. ... Half an hour later, they had to issue a new headline. As these U.S. Treasury bonds fell in price (they fluctuate all day long, so there was nothing special about that), Bloomberg News had a new reason for the fall: Saddam's capture (the same Saddam). At 13:31 they issued the next bulletin: U.S. Treasuries Fall; Hussein Capture Boosts Allure of Risky Assets. So it was the same capture (the cause) explaining one event and its exact opposite.
In 'Stocks for the Long Run,' Jeremy Siegel wrote:
On November 15, 1991, when the Dow fell more than 120 points, or nearly 4 percent, Investor's Business Daily ran an article about the market entitled "Dow Plunges 120 in a Scary Stock Sell-Off: Biotechs, Programs, Expiration and Congress Get the Blame." In contrast, the London-based Financial Times published a front-page article by a New York writer entitled "Wall Street Drops 120 Points on Concern at Russian Moves." What is interesting is that such news, specifically that Russian government had suspended oil licenses and taken over the gold supplies, was not mentioned even once in the Investor's Business Daily article!
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

glorat
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Re: What's causing the prices of global bonds to drop currently?

Post by glorat » Wed Sep 11, 2019 8:37 am

I'll bite...

I watch my two fund portfolio in morningstar most days. With all the market volatility, most days equity and bonds are moving in opposite directions - i.e. negative correlation. So bonds are doing their job. These days, it seems to be this daily speculative risk-on/risk-off attitude where volatility seems money moving between risky equities and safe bonds. As more money has moved into equities these few days (with prices going up), money has left the bond market (thus prices going down)

Of course, this negative correlation doesn't always happen. It depends on market sentiment news.

In any case, as Bogleheads, I learn that it is good that bonds are balancing out equities more often than not, that my AA is doing its job and that one should just ignore all this short term noise

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YRT70
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Re: What's causing the prices of global bonds to drop currently?

Post by YRT70 » Wed Sep 11, 2019 9:09 am

Thanks for the input guys. Learning every day.

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asset_chaos
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Re: What's causing the prices of global bonds to drop currently?

Post by asset_chaos » Wed Sep 11, 2019 6:07 pm

Please train yourself to ignore such fine grained changes. Don't look every day or week or month. Look once in 6 months, even better, look once a year, shrug, and say, I'm sticking to my plan. Ignore short term fluctuations. I promise that soon enough you'll feel better about your investments and have a lot more mental space for enjoyable endeavors. Buena suerte.
Regards, | | Guy

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