Tuesday, October 20, 2015

Bond Market Would Crash Tomorrow If Not for Me

Hey, I'm just doing my part as a bond investor to keep the financial markets stable.

October 21, 2015
10 bold stock market predictions for 2016

Now who thinks rates will rise soon? Raise your hands. Ah, that’s everybody in the room.

Long-term rates? My hands are not raised. If everyone truly believed that long-term interest rates would soon rise then nobody would own long-term bonds, myself included. Funny how that works. It's economics, not rocket science.

Put another way, markets can't function properly if everybody has exactly the same opinion.

“They can only move in one direction and that is up,” Johnson notes. “I believe that bond investors would be well-served to shorten the duration of their bonds — that is, move from longer-term to shorter-term bonds — in anticipation of rising rates.”

The 30-year treasury yield is currently 2.91%. I think most reasonable Japanese investors living in ZIRP would understand that long-term interest rates still have two directions that they can move.

Fortunately, American ZIRP is nothing at all like Japanese ZIRP. They fell into it after their housing bubble popped whereas we fell into it after our housing bubble popped. See? That's two entirely different things, lol. Sigh.

As a side note, if I got a dollar every time I was told to shorten the duration of my bonds since retiring in 1999, then I could definitely afford a movie and a nice dinner. That's assuming that I did not actually take the advice, of course.

This is not investment advice. I can say that I bought many individual long-term bonds with the intent to hold to maturity, have never sold any of them, and have never regretted the decision. Go figure.


Rob Dawg said...

A 30y bond maturing this month has been yielding 11.27% ever since.

Stagflationary Mark said...

Rob Dawg,

It's almost like the ability to make money off of money continues to get harder and harder.

Yeah, it's almost exactly like that. Sigh. :(