12 Questions Regarding That Bond Market Bubble

By See It Market  JAN 30, 2013 4:55 PM

When a 32-year bull market in bonds eventually ends, its demise will likely not be as tidy as advertised. Here are some questions you may want to consider.

 


As 2013 began, financial market participants were showered with a new batch of predictions and outlooks for the New Year. A common prognostication (again) was the forecast of an end to low interest rates and the bursting of a bond market bubble that many continue to say is imminent.

Even though a sell-off in bonds has yet to occur, those predicting it have not been deterred. This year’s crop of predictors seemed even more adamant in calling a reversal in yields despite the Federal Reserve’s ZIRP (Zero Interest Rate Policy). And the sole follow-up question for prognosticators usually involves bonds correlation with equities. Yet, here again, we are assured that their calls for a bursting of the bond market bubble (and higher interest rates) mean good times for the stock market, as investors would simply move assets from bonds to stocks.
 
However, when a 32-year bull market in bonds eventually ends, its demise will likely not be as tidy as advertised. Especially if the bond market bubble has more gas in the tank. Either way, here are some questions you may want to consider if you are expecting its demise:
Given that we are sitting at such ultra-low interest rates, it makes for easy predictions of an imminent move higher (and end to the bond market bubble). Difficult questions of what economic shocks might hit our system if this were to occur may not be as simple as they seem. Perhaps the most important question is not when interest rates rise, but whether interest rates can rise?
 
This article by Ross Heart was originally published on See It Market.
No positions in stocks mentioned.