| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Bond Bubbles! Bond Bubbles! |
The Motley Fool - Sept. 3, 2010 - By Morgan Housel
Bond bubble talk is rife these days. Maybe it's because we've become, as one economist put it, "armageddon hypochondriacs." Recent experience leads us to believe that markets are always on the brink of insanity and meltdown.
Others disagree. Slate magazine's Daniel Gross, one of my favorite business writers, recently penned an article refuting the idea that bonds are in bubble territory. It's a good read, but most of his arguments aren't terribly convincing.
Says Gross:
[B]ubbles are generally driven by greed and fearlessness. Investors jump in thinking they have nothing to lose and are certain they can get a massive return. ... But today's bond buyers are driven more by fear than by greed. They're not buying government bonds because they think they can double their money by December, or get a 50 percent return in a year by finding a series of greater fools. In fact, it's the opposite. U.S. government bonds are the ultimate safe haven, the least bad place to invest. People are buying government bonds with paltry yields because they can't think of anything better to do with their cash.
I'm not so sure. First, people used the same argument during the housing bubble: that investors were plowing into real estate -- an apparent "safe haven" -- only because they couldn't think of a better place to put their cash after being burned by the dot-com bust. Not knowing what to do with your cash doesn't make you any smarter. Much less so, in fact.
And I don't think bubbles have to be associated with dreams of massive returns, so much as dreams of impossibilities and unlikelihoods. That can happen in fear bubbles, as some would characterize the driver of today's bond market as, in just as powerful a way as bullish ones. The driver of fear bubbles is the same attitude that drives bullish ones: Investors take an extreme event that prevailed in the recent past and extrapolate it into infinity. In either case, the result is lunacy.
The neverending story
With 10-year Treasury rates well below 3%, what fear-driven hell is the bond market extrapolating into infinity today? A world with perpetually slow growth, negligible inflation, and a Federal Reserve capable of keeping interest rates low by purchasing public debt by the trillions. The last two points eventually become mutually exclusive (perhaps before long), which seems reason enough to think the bond market has lost its noodle.
That aside, the example most cite as justification for hibernating in bonds is Japan's infamous lost decade, where bond yields faceplanted in the '90s and have remained there ever since. Japan had a big deflationary recession. We've had a big deflationary recession. Thus, they say, our next 10 years should be just like their past 10.
But the differences between Japan and the U.S. are huge. Japan's citizens save like champions, allowing it to finance its own misery internally. Not so here. The U.S. is dependant on the kindness of foreign strangers to finance its debt, a point that alone makes mimicking Japan's malaise far-fetched. I'm comfortable predicting that foreign creditors will bail on the U.S long before it has a chance to run debt near 200% of GDP, as Japan has. History bears this point out.
Speaking of issuing debt, here's Gross again:
[L]ook at the behavior of the peddlers of the allegedly bubbly securities. During bubbles, when foolish investors are willing to place high valuations on companies in a hot sector, entrepreneurs and managers rush to give the public what they want. ... In a bond bubble, when borrowing costs are exceptionally low, you'd expect the government to increase its borrowing significantly, taking advantage of the idiots by issuing new bonds like crazy. But that's not happening. The federal government has actually borrowed less as bond yields have fallen -- much to the chagrin of liberal economists and progressives, who think the Obama administration is foolish not to borrow money at these insanely low rates and invest in high-speed rail, job creation, and infrastructure.
For the complete article visit The Motley Fool
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