Bond Bubble

If there were a bond bubble, this is what it would look like: trillions of dollars of Eurobonds going for negative interest rates, the 10 year German bund yielding pennies and Mexico promising to pay back bonds in 100 years with an interest rate of 4 percent. More than half of the world’s government bonds are yielding less than one percent. We don’t have any experience with this kind of a world. We know it won’t last forever but we don’t know when and how it will end. We do know that we should be careful in buying bonds. None of this means that we shouldn’t buy bonds or that everyone will lose money. A good guess is that many, if not most, of these bond buyers haven’t thought through the end game and if trouble comes, it will be unexpected. There are many reasons why interest rates are so low. One is that the Great Recession was so terrifying that people still haven’t recovered. They aren’t willing to sign up for risky assets and as a consequence they have made a once safe asset one of the riskiest. As the saying goes, buyer beware.

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