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.
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?
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.
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