iBankCoin
18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.
Joined Nov 10, 2007
23,423 Blog Posts

There’s No Such Thing as a ‘Bond Bubble’

Stocks can have valuation blowouts. Art can have valuation blowouts. Wine can have valuation blowouts. Bonds can never have a valuation blowout — because the yields investors are willing to secure for lending money to government is relative. It is relative versus the prevailing yields of the day.

For example, does America have a ‘bond bubble’ now, with the 10yr at 1.56%? Arguably, we’ve been in a terrific bull market for bonds for more than a decade. To suggest it’s a bubble would imply American bonds are disconnected from reality, or some sort of benchmark.

What can we compare it to?

How about other western nations?

Sure, let’s do that shit.

Austria -0.36%
Belgium -0.29%
Bulgaria 0.42%
Croatia 0.6%
Czech 1.19%
Denmark -0.61%
France -0.34%
Germany -0.63%
Ireland -0.06%
Italy 0.87%
Switzerland -0.91%

Relative to Europe, are American bonds inexpensive or cheap? I’d argue the latter.

Is the economy booming and in the position to send rates higher?

Positively not.

Is everyone in the bond market wrong and could the entire multi trillion dollar complex be in a bubble?

Why fucking bother thinking about that sort of horseshit. It’s a naive and narcissistic position to believe you know more than the market, especially a market that is deeply rooted in heavy analytical research.

We are not in the bond bubble. However, that does not mean bonds cannot ebb and flow from present levels, which demands that you pay close attention to price action and take action if your cost basis gets too far away from prevailing prices.

My bias is for bonds to trade appreciably higher to the upside for a sundry of reasons, the first of which is Trump and his new role at the FOMC. Plus, let’s face it, we’re in the late stages of the American Empire, saddled with $22 trillion in debt that cannot be serviced at higher yields. Governments around the world have too much debt and cannot afford higher rates. Ergo, they’re keeping them artificially low for as long as they can — for as long as they could control markets.

Does it look like they’re losing control?

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16 comments

  1. metalleg

    Does it look like they’re losing control?

    No.

    Will they eventually lose control?

    Yes.

    When?

    No clue.

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    • ferd

      I’m on record with a prediction of 1997. Now I predict that it ends when I turn bullish.

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  2. dragun

    CBs do not have P&L and keep on printing

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  3. omfgitsjd

    They only lose control when the masses stop giving it to them.

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  4. spaceman

    I think in this situation you should have 30% in gold and especially silver coins to leverage gold’s move and to have them 5 years from now just in case things go sideways in all the debt based fiat markets.

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  5. numbersgame

    Long bonds is what I’ve been saying on this blog for several months (a year?).

    Even so, I actually think the whole bond market is in a bubble, from Japan, to Apple, to UST to high yield. However, bubbles pop when nobody wants to buy, and something *else* I’ve been saying for months is that the CBs will buy until they can’t. Also, Europe and Japan will pop first due to demographics.

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  6. numbersgame

    Been tooling around on ZH:

    For Bulls:
    Strike 1: Inversion
    Strike 2: https://www.zerohedge.com/news/2019-09-06/robert-shiller-drops-bombshell-wouldnt-be-all-surprised-if-us-home-prices-started
    Strike 3: Friday https://www.census.gov/retail/index.html

    This doesn’t help, either: https://www.zerohedge.com/news/2019-09-04/trucking-recession-heavy-duty-truck-orders-collapse-production-slashed-cancellation

    Russia’s utter failure as an economic power is on dispaly:
    https://www.zerohedge.com/news/2019-09-07/first-time-ever-russia-will-issue-sovereign-bonds-denominated-yuan

    There was some good news: it turns out that even the dead sometimes get justice served to them: “Epstein was placed in an unmarked grave”
    https://www.zerohedge.com/news/2019-09-06/epstein-buried-unmarked-grave-wealthy-jewish-cemetery

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  7. s.k.

    Tulips, tech, real estate…those were bubbles. The US bond market is not in a bubble. The total value of the US exceeds our debt and our ability to service and protect is unmatched. In a deflationary world where can you get safer yield?

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    • bob smith

      “The total value of the US exceeds our debt…”

      So, all we have to do is sell our country to China and we’ll be debt free.

      Moron.

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      • s.k.

        China wouldn’t be able to raise the funds required to buy us.

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      • omfgitsjd

        For the love of God, we have been bankrupting ourselves in the Afghanistan War (The Graveyard of Empires) for 18 years. Even the Trumpster can’t stop the bleeding.

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        • s.k.

          You can thank the party of fiscal conservatism for the trillions of dollars wasted in the ME during the Iraq war. Republicans love to wag their finger about debt and spending but the moment they are given the purse strings they spend like kept wives drunk on Chardonnay.

          You are a goddamned idiot for being too dense to understand that your “Trumpster” is intentionally running massive deficits by design by cutting corporate tax rates and increasing spending.

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          • omfgitsjd

            I have no vested interest in your emotional triggers. I’m just sick of the extortion by the Afghan tribes. We can’t afford it. It has ruined every country that has gone in.

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          • ferd

            SK is no doubt aware that the Dems have also supported all the wars that he loves ….all the wars in countries that were on the neocon/Project for a New American Century shopping list since the late 1990s.

            SK and his ilk are playing the short game, and it’s going to bite him, and his …and all of us in the ass. The West’s real competition, the Chinese, are the beneficiaries.

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          • omfgitsjd

            Yeah, I don’t view it politically, just financially. The Spartans, Alexander the Great, Genghis Kahn, the Brits, and the Soviets, all tried to be ruthless in Afghanistan, but yet their gold reserves were bled dry until they were on their knees and shrinking. The Afghans might go for some McDonalds or a shopping Mall or two, but they don’t want occupiers, Democracy, or Communism. Three or four trillion in US government borrowing for Afghanistan is enough. Time to cut our losses.

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  8. s.k.

    Well, I suppose you are also an idiot for thinking Afghanistan is ruin, but then again simple people prefer simple explanations.

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