The Unpoppable Bond Bubble?

Leo Kolivakis's picture

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SheepDog-One's picture

A bond bubble backed by dollars? Yea thats a real 'safe haven', LMFBO!!

covert's picture

why are we still playing with paper? why not use gold or silver?

Ned Zeppelin's picture

"Fed's Bullard says treasury buying beyond that needed to keep balance sheet steady may be warranted if disinflation risk rises." RANSquawk today

well, there you go, Fed's messenger boy Bullard with what is really going on: QE 2.0 is here, folks.  This ain't QE Lite, or QE 1-1/2, this is the full monte.


Spigot's picture

QE forever till the debts are drowned in hyperinflationary cash...all better now.

Muscletonian's picture



Hows the bottom fishing doing, still long from 1100, you got out with a small loss or keep riding it down the drain?

Ripped Chunk's picture

Shut the nitrous tank down, please!

Spigot's picture

Just calling em as I see em.

Spigot's picture

The assumption that the only thing that will drive the US bond market into the toilet is ...


But even those who agree with Siegel concede that there is no sign that a gust of economic recovery winds that might knock bond prices into free fall -- which means the current, apparently unsustainable, bond rally could continue for longer than anyone might like to say.


... is naive. Risk primia also can drive interst rates back up quite a lot, and I would suggest that repayment concerns (relative to currency valuation) will become the trigger that blows this sky high.

Foreign holders of USTs watching a devaluation of the US$ and artifically strangled interest rates will FLEE USTs and all other low yeilding bonds.

China just announced it will not use the US$ as a reserve currency, instead prefering the Euro (watch out Europe!), and is using its US$ holdings t buy other nation's bonds (Korea recently). And in IMO, China is conducting policy through financial means to seperate the US from its tight relationships with its "regional allies". Expect to see this as a continued weakening of overseas support for US policies as well as eroding finaicials and US$ in international transactions (to include falling US equities markets, etc).

Problem Is's picture

Thanks for the info Leo... a novice learned something today...

anony's picture

"...about to pop"?

Absolutely not. 

There are few questions in life this unutterably simple that can be answered without reservations.

No, it is not about to pop.



ZackAttack's picture

Bond bubble started in 1980. Long bonds have outperformed every other asset class during that timeframe.

The bubble took 30 years to blow and it won't come unwound in an afternoon. Wait until it happens and catch a nice safe 50% out of the middle of the move.

When it does pop, I don't think shorting bonds is the trade; it's all the rate-sensitive derivatives.

Think about how much shit comes apart with, say, a 6% 10 year.

Joeman34's picture

Well said.  Most people forget how well Treasuries have done relative to equities both over the long-term and recently.  For this reason, I think the day of reckoning may be closer at hand than many anticipate.  I can't remember where I saw this, but if 10-year rates rise only slightly, holders will be subject to unrealized losses greater than the expected interest payments they'll receive from the bonds.


The question is - as a small investor, how to play the eventual correction in Treasuries.  I don't like TBT or the other inverse ETFs due to leverage decay.  I don't have enough capital for complex derivative trades.  I'm thinking about getting more active in the Eurodollar futures and options market.  You [or anyone else] have any thoughts?

bIlluminati's picture

Long Canadian dollar, long resource stocks - but right now only the ones with low P/E. My gut feeling is that it's too soon for most of these except short Europe.

Joeman34's picture

Interesting angle on the resource stocks.  Not so sure about Canadian dollar, however.  I've heard anectodally that their due for a property market correction similar to the one in the U.S.  If this happens, I think the dollar will once again be the best house in a bad [global] neighborhood.


Agreed on short Europe.  I am using leveraged ETFs for this trade [EUO, EFU] as I think the time horizon to realization is much shorter and therefore I'm not as worried about leverage decay.

antidisestablishmentarianismishness's picture

Lots of people saw the housing bubble in '03.  Shorting bonds should be a lot like shorting housing stocks starting in '03. 

Leo Kolivakis's picture

Excellent point, just because you see a bubble, doesn't mean it can't go on for a lot longer than you think. This bubble is engineered by the biggest hedge fund in the world, the Federal Reserve. All those big global macro hedge funds who tried massively shorting Treasuries got their asses handed to them in the last few years. Having said this, bonds are like stocks now, in a trading range. You can make money shorting bonds, but don't get greedy. Pick your spots carefully. There will be hiccups along the way.

EscapeKey's picture

"...policymakers will shift from fighting inflation to fighting unemployment," said Schweitzer.

One of the reasons hyperinflation kept going for so long in Germany was because TPTB realized monetary tightening would cause unemployment.


Max Hunter's picture

Germany 1920's was a totally different scenario. They had war reparation payments. As I understand it, that had a lot to do with the Wiemar inflation.

bIlluminati's picture

Germany 1923 had war reparations. We have Chinese interest rate payments. And, who is this "other" that's buying up U.S. Treasuries from the Chinese? ECB? Fed? Does the Fed just send checks to all the teachers, retirees, unemployed, and food-stampers until ...

Is $1.3 trillion per year in deficit spending greater than German war reparations? I'm going to take a wild guess and say yes.

Young's picture

It won't but, the question as always, when? I have a hard time seeing the media noticing this so close to the end.

zhandax's picture

The Chinese are dumping their trillion in T-bonds and our idiots have rigged the game so they can do so at a profit.  Collusion or coincidence?  Either way, anyone care to postulate how this ends well?

antidisestablishmentarianismishness's picture

Life doesn't end well either.  Should we just kill ourselves right now?

Max Hunter's picture

That's all about perspective.. I'm thinking when I go, I'm gonna say wow.. this is nice.. Why was I worried about this.. LOL.. And i'm not religious.

Young's picture

Is it time to start asking ourselves whether equitities will fall, or, the bond bubble burst causing a rush of equity buying?

malek's picture

...when investors throw in the towel and just buy bonds for the long-run.

Well, I as an investor will never buy a single bond before this bubble pops!

Hedge Jobs's picture

Siegel, author of "Stocks for the Long Run,"

anyone who writes a book with the above title should be ignored.

"His 1994 book Stocks for the Long Run sealed the conventional wisdom that most of us should be in the stock market." He was right for 5 years and wrong for 10!

this guy is a perpetrator of the Ponzi

AUD's picture

Read some Doug Noland,, he's got the best handle on credit. Some snippets from last week:

"Tuesday’s announcement from the Federal Open Market Committee (FOMC) further emboldened a highly-speculative fixed-income marketplace."

"But the real show was provided – once again - in fixed income.  Prices continued their melt-up – yield meltdown – with Bubble Dynamics becoming only more conspicuous each passing week.  And I know that most dismiss the Bubble thesis and view prices as reflecting poor economic prospects and the deflationary backdrop.  I would respond that the environment remains extraordinarily conducive to Bubble expansion."

"Today, extreme activist fiscal and monetary policies inflate the Global Government Finance Bubble.  After the 2008 fiasco, I have a difficult time comprehending how analysts can remain dismissive of Bubble risks.  And with an increasingly conspicuous Bubble at the heart of our monetary system, our central bank should not be reinforcing the market perception that the Fed is there to backstop the markets and economic recovery with open-ended Treasury purchases."

anonnn's picture

more Pres. haiku:

Great finger-wagger.

constitutional scholar.

dear Shirley Sherrod.



Rob Jones's picture

Tsunamis come charging in, do a huge amount of damage, and then head back out to sea.

anonnn's picture

Presidential haiku:

Tsunamis come charging in

do a huge amount of damage

and then head back out to sea.

TBT or not TBT's picture

Mixed metaphor alert:    After a tsunami strikes, you can't determine for sure which of the victims was swimming naked.     Just saying.

Rob Jones's picture

But they do create lots of bubbles.

traderjoe's picture

Leo, if the bond bubble pops, what happens to the stock market? Can't be good for the Chinese solar stocks?

Young's picture

It's great for stocks if they cause the bond bubble to burst, i.e. the "herd" moves back to stocks.

pitz's picture

Great for large-caps that have productive physical assets.  Terrible for small caps and firms that require on-going financing to be viable.



Young's picture

I should add to my post that it's great for stocks if the money moves into stocks from bonds. Considering your post pitz, neither the administration nor the media gives a shit about small caps/small businesses. The administration would rather bragg about adding jobs in the public sector which guarantees absolutely zero/zilch growth but higher taxes... Welcome to the Soviet States of America. Meanwhile the small businesses are dying, but hey, let's all work for "the federation", sure that will work out fine... Or not.

Leo Kolivakis's picture

Read my comment carefully, it won't pop anytime soon. In the meantime, enjoy all those other bubbles forming as hedge funds look to justify their 2 & 20 fee structure.

SheepDog-One's picture

'Bond bubble wont pop anytime soon' oh well until at least tomorrow when Israel take out Buhshear, and retaliations against US commence. All is well, until it suddenly and tragically and 'UNEXPECTEDLY' of course no longer is.

whatsinaname's picture

anytime soon could be tomorrow ?

as if you can really time the bond market..

RockyRacoon's picture an uncertain world, gold offers refuge against the ravages of both inflation and deflation (especially physical gold).

Well, there ya have it.  Bonds?  What bonds.  I don't need no stinkin' bonds.

Mitchman's picture

The Bond Bubble is the Mother of All Bubbles.

Moonrajah's picture

So what do we call those inflating it? Motherbubblers?

TBT or not TBT's picture

And government/CB activity is then the godmother, godfather, obstetrician, gynecologist, wing woman, bridesmade, natural father, father, and health insurance provider of the Mother.

Mercury's picture

Siegel's right about the bond market walking a tightrope. But even those who agree with Siegel concede that there is no sign that a gust of economic recovery winds that might knock bond prices into free fall -- which means the current, apparently unsustainable, bond rally could continue for longer than anyone might like to say.

Right, so either we stay in a depression or a rise in rates accompanying any inklings of a recovery crashs the bond market and we go into a total economic collapse.

Please make a note of it.

Hansel's picture

... it's unlikely to pop anytime soon...

Subprime is contained.