The Bond Market is the Biggest Bubble of our Lifetime
Comment of the Day

October 07 2019

Commentary by Eoin Treacy

The Bond Market is the Biggest Bubble of our Lifetime

Thanks to a subscriber for this interview of Louis-Vincent Gave which appeared in themarket.ch. Here is a section:

On a global level, bonds with a value of about $15 trillion currently trade with a negative yield. What’s going on here?

For every investor today, the starting point must be the bond market. Just a few weeks ago, we had $17 trillion of negative yielding debt. We’re now down to about 15, but even that is way too much. This is investment money that is guaranteed to produce a loss of capital. These extreme levels in today’s bond market can only have three possible explanations. One, the world faces an economic meltdown of epic proportions. Two, the bond market is the biggest bubble we have ever witnessed, and three, we have just experienced a massive buying panic in bonds.

Eoin Treacy's view

I agree with all three of these points so we then need to address the question of what will happen to deflate the bubble. The answer is inflation which is like kryptonite for the bond market. The only way anyone can justify buying bonds with a negative yield is if they believe the deflationary argument is self-fulfilling. 

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