'Bonds are in a bubble'?

Lois_and_CK

I've read on a couple of threads 'some people think bonds are in a bubble'. What does 'in a bubble' mean?

Glen_Clark

let Wikipedia be your friend - look under 'economic bubble' on this link
http://en.wikipedia.org/wiki/Bubble

princeofpounds

It means they think they are over-priced investments relative to their intrinsic value. As a result, you end up paying too much for the stream of future cash flows you will receive (and in practice a loss may be taken should the market pricing of the bond correct to fundamental values).

The cause of the bubble could be explained in a number of ways but simply put it is being caused by the world's major central banks setting very low interest rates.

RobTang

princeofpounds wrote: »

It means they think they are over-priced investments relative to their intrinsic value. As a result, you end up paying too much for the stream of future cash flows you will receive (and in practice a loss may be taken should the market pricing of the bond correct to fundamental values).

The cause of the bubble could be explained in a number of ways but simply put it is being caused by the world's major central banks setting very low interest rates.

But surely with a lower interest rate this would mean my return on a bond would be smaller, so as an investment they are not very attractive. Thus demand for them should be going down not up...





I don't think most casual investors would be trading bonds on the secondary market anyway...

Glen_Clark

RobTang wrote: »

But surely with a lower interest rate this would mean my return on a bond would be smaller, so as an investment they are not very attractive. Thus demand for them should be going down not up...

demand would be going down if there was a better offer elsewhere. But there isn't because 'the world's major central banks setting very low interest rates.'

Investors are desperate for protection from inflation. Thats why the stock market has risen so much although company prospects have not improved.

grizzly1911

With an investment into a fund would some of this downside be managed by the fund as they progressively rolled over bonds within the fund?

I accept that funds may also be priced high because of demand but any drop off being less severe than investment into single bonds directly?

It will be interesting to see if the move into funds, by many who have never bothered before, will actually be reversed to any great degree. There still seem to lots of people chasing a couple of percentage points on cash deposits.

Lois_and_CK

Thanks everyone, and for the wiki link too. It's clearer now!

sabretoothtigger

I think Jimi Hendrix said it best, feedback distorts and amplifies
http://www.youtube.com/watch?v=JMyoT3kQMTg


If you read this it kinda explains how the hell everything is such a big deal nowadays, the system is weak
http://en.wikipedia.org/wiki/Positive_feedback

Clear your mind of the colloquial meaning to this phrase, negative is actually a positive for society.

. Negative feedback tends to make a system self-regulating; it can produce stability and reduce the effect of fluctuations.

http://en.wikipedia.org/wiki/Negative_feedback

We have the former when we previously relied on the latter for stability and its an ongoing developing problem, in bonds but also anywhere overall

Ark_Welder

sabretoothtigger wrote: »

I think Jimi Hendrix said it best, feedback distorts and amplifies
http://www.youtube.com/watch?v=Kt4d_YcyT7k

Yeah. But H was THE master of control in this field!

sabretoothtigger

Can Mr Ben play electric guitar, he is spending a trillion this year. I dont think he has any rhyme or reason to his method, I cant hear the music

We cant blame or rely on one person or even a few people for success its just not setup right now.
Feedback loop is a technical industrial process and economic arrangements now are set badly, its bound towards failure.
Inevitably we have to reverse that process to reinforce instead of it spinning off kilter which apparently happens continually now.
No matter our own individual or political views, its a process failure or so I reckon!

http://www.youtube.com/watch?v=jedbsg-H_-c