The Bond Bubble
Ted Kavadas | Jun 24, 2014 10:22AM ET
In previous posts I have discussed the Bond Bubble and its many facets, as my analyses indicates that the overall bond market is an exceedingly large asset bubble with immensely large and wide-ranging economic implications.
Since my last post on the Bond Bubble (the February 6, 2013 post titled “The Bond Bubble – February 2013 Update “) I have written various posts about interest rates and associated dynamics.
It should be noted that current rates on 10-Year Treasury Yields, from a long-term historical view, remain extremely depressed. This can be seen in the following chart of 10-Year Treasury Yields:
Data Source: FRED, Board Of Governors Of The Federal Reserve System; accessed June 23, 2014:
Here is another chart of the 10-Year Treasury Yield, from 1980 on a LOG scale, with a long-term trendline, and currently yielding 2.623%:
Perhaps one of the more striking aspects of the bond environment is that although 10-Year Treasury Yields are up significantly from their lows, various interest rates on less creditworthy securities are at or near their lows. This can be seen in various securities and bond segments, both domestically and internationally, including the OAS Spread at 3.36%.
Of course, the question remains as to which direction interest rates, especially on the 10-Year Treasury, will take from here.
While there have been many arguments – including economic weakness – put forth that would indicate 10-Year Treasury Yields will fall from here, there are also many other (including those lesser-recognized) factors that indicate that the next sustained move on 10-Year Treasury Yields will continue upward. While the “up vs. down” argument is complex, my analyses indicate that the trend in the 10-Year Treasury Yield will continue upward.
As I have explained in previous posts on interest rates and the Bond Bubble, such as the August 22, 2013 post “The Impact Of Rising Interest Rates ,” what is particularly intimidating is the prospects for the economy and financial markets when the bond bubble finally “bursts.” While the duration of this bond bubble makes (ultra) low interest rates seem sustainable – and by extension, “natural” – my analyses indicate that this interest rate environment is nothing of the sort.
Get The News You Want
Furthermore, relative to past rising interest rate environments, due to various current dynamics the coming increase in interest rates will be far more pernicious to the overall economy.
As I stated in the aforementioned February 6, 2013 post;
The perils of this bond bubble and its future “bursting” can hardly be overstated.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.