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Tuesday, May 29, 2012

Bond bubble?

I constantly see people talking about bonds being in a bubble.  I have heard people exclaim bonds will be the short of a lifetime.  Most bubbles are characterized by people jumping on board and everybody is convinced it can only go higher.  The pure number of people proclaiming bonds are in a bubble is good evidence this is unlikely.  At some point in time nearly everybody will give up on the bubble idea.  Then it might be time to do something.  By now you know I like to have charts to back up an opinion.  Here is a look at some history of the 30 year bond.  Study these monthly charts for a minute before reading on.

The white line is a 100 SMA, in this case 100 months.  Since crossing below that moving average in the mid 80s, rates have been rejected many times right at this average.  The trend has been down for a very long time.  Here is a look at the much talked about TBT an inverse bond ETF.

Sure this chart has some bounces in it, but the trend is down.  Is this a bubble, are bonds going to sell off and rates sky rocket?  No sign of that yet.  Lets look at some more charts.

Pretty low rates there.  I remember the talk about a bond bubble in Japan as well.  What happened next?

Well, 16 years later and still no short of a lifetime in Japan.  At some point rates are going to go up, but when.  I believe I will wait until the 30 year rate crosses that 100 month SMA before calling the end of the bond bull that has been going on since 1981.


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.