4 ms·

As much as I want to defer to the expertise of the author, to say that there's been a 30-year bull market in bonds is to say that there was at least a 20-year b

by duncanj 16y ago

As much as I want to defer to the expertise of the author, to say that there's been a 30-year bull market in bonds is to say that there was at least a 20-year bear market before 1983. This may be the long term trend, but within that is up and down like you'd expect in the business cycle. The confusing thing is that those who are buying bonds are bearish about the economy as a whole. You have to be buying these things thinking they won't be wasteful when interest rates rise. If interest rates skyrocket like many voices claim they will, those who are holding 0.25% paper are going to be unhappy when they are unloading it at 80 cents on the dollar. His discussion of the matter seems very confused. The problem with the bond market right now is that there is no inflation, but real returns elsewhere are often negative. So bonds are a safe place to put money. It's certainly not being invested. Now, one can argue whether the Fed has any ability to affect that. The clock may have run out on quantitative easing, as I have heard argued. That means the Fed would be somewhat irrelevant and the US economy would falter in the absence of fiscal stimulus. There aren't many voices articulating sense in this discussion. Many have simply said "deficits bad" and called on increasing unemployment as the solution to our concerns. Good luck with that. I think the solution probably requires preventing the unemployed from becoming the desperately long-term unemployed, at a minimum, and also using the favorable bond situation to repair infrastructure, which is apparently in huge backlogs across the country. To some extent, I wonder if Bill Gross is really just sort of pandering to his clientele, who are not sophisticated economists and who are happy to agree that politics is full of apes. After all, at the end, his call to action is for a vote of confidence in PIMCO. This article doesn't give me much faith, but I suppose if he hit the right buttons, his investors might just pull that lever, and keep sending the money his way.

btilly 16y ago
Over the last 30 years bond yields have fairly steadily declined. Admittedly with variation, but the trend has been clear. However there is no way for them to decline further at this point - they can't go much below 0%. (They can go below 0%, Treasuries did briefly during the crisis, but not by much.) Furthermore in the last 30 years we've seen the broad expansion of bond categories like junk bonds and securitized bonds. This has resulted in great growth in the bond market, and it simply doesn't have room to grow by that much again. (Indeed fallout from the subprime debacle is likely to make it shrink going forward.) Prior to that the advent of increasing inflation rates winding up with stagflation did constitute, from the point of the bond market, a long and nasty bear market.

by duncanj 16y ago

btilly 16y ago

Over the last 30 years bond yields have fairly steadily declined. Admittedly with variation, but the trend has been clear. However there is no way for them to decline further at this point - they can't go much below 0%. (They can go below 0%, Treasuries did briefly during the crisis, but not by much.) Furthermore in the last 30 years we've seen the broad expansion of bond categories like junk bonds and securitized bonds. This has resulted in great growth in the bond market, and it simply doesn't have room to grow by that much again. (Indeed fallout from the subprime debacle is likely to make it shrink going forward.) Prior to that the advent of increasing inflation rates winding up with stagflation did constitute, from the point of the bond market, a long and nasty bear market.