Monday, January 7, 2013

Is the Bond Market in a Bubble?

Interest rates on bonds have never been lower, especially when you look at government bonds and especially the US government bonds.

Some people think that there is this huge bond market bubble forming and it will be very ugly when it bursts. Personally, I have not been in bonds for some time and have no plans to buy bonds anytime soon.

Of course, nothing lasts forever. Interest rates will, at some time in the future, go up. Since value of bonds (capital) and interest rates move in the opposite directions, people with bonds will lose money. I doubt if the interest rates will make up for this capital loss.

However, the situation of low interest rates could last for a long period of time. These sorts of situations can last a lot longer than people imagine. It is like the tipping point situation. Things will change rapidly when they do change.

Ambrose Evans-Pritchard being interviewed by Lars Schall in December 2012 also remarks on this. See interview on Gold This is one of the things that Pritchard talks about.

See also an interview with Jim Grant on Capital Account. He talked about the fact that we had a bond bear market (rising interest rates, falling bond values) from 1946 to 1981. Then we have had a 31 year bull market (falling interest rates, rating bond values) from 1981 to date. Interview starts 3:15 minutes into the video.

What I am into is buying assets (stocks) that pay dividends. I do not look at buying stocks as gambling. I look at buying stocks as assets. I buy assets that produce an income stream.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

1 comment:

  1. Buying bonds of any type as a investment is a mistake. High yield bond funds yield maybe 7.00 percent or so. US Treasury securites are much worse ten year treasury bonds yield less than 2.00 percent.