Bond Market Something Wicked Cometh This Way - Seeking Alpha

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Bond Market: Something Wicked Cometh This Way

Mar. 4, 2014 1:04 PM ET | 2 comments | Includes: GOVT, PLW, TRSY by: Profit Confidential

Bond Market: Something Wicked Cometh This Way [iShares Trust, PIMCO ETF Trust] - Seeking... http://seekingalpha.com/article/2066533-bond-market-something-wicked-cometh-this-way?sour...

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And China is slowly exiting the U.S. bond market, too. According to the U.S. Department of the Treasury, in December, China sold the biggestamount of U.S. bonds since 2011. In December, the country reduced its U.S. bond holdings by $47.8 billion, or 3.6%. It now holds $1.27 trillion

worth of U.S. bonds. (Source: Bloomberg, February 18, 2014.)

When I look at the bond market, I only see risk. The Federal Reserve - the key backer of lower bond yields over the past five years - is pulling back

on its money printing program, which was what had fueled the bond market's rally in the first place. And we have China pulling back on itsholdings of U.S. Treasuries, too. So, who will buy U.S. Treasuries if both the Fed and China are pulling back on buying them? Won't rates on bondsneed to rise in order to attract more buyers to them?

I'm afraid the bond market is setting up for an imminent sell-off. And while many retail investors take the bond market lightly, a falling bond market

will have a massive negative impact on the stock market and the housing market - a caution for investors.

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B d M k t S thi Wi k d C th Thi W [iSh T t PIMCO ETF T t] S ki htt // ki l h / ti l /2066533 b d k t thi i k d th thi ?



I think it is safe to say that for the last 2 years the experts have all been pretty much clueless on bonds. Likely this is due to the reality thatwe are in a deflationary environment when everyone seems to be expecting the opposite.

If we look back to post 2009 with the ZIRP we managed to get down to right around 4% 10 year rates. Then QE drove interest rates evenlower. So without QE and ZIRP one would think 4% would be the natural levels for 10 year rates to rise to. However with the EU unable toforce interest rates higher (it would destroy all of their budgets so the ECB will ensure rates stay constrained as long as possible) I think that

it is likely that we won't even see rates that high.

In the end this is a market and there is ample wealth in the world looking to buy bonds. So if Europe pays around 2% the US paying 2.6% is

likely sufficient. Even worse, as the US budget deficits remain constrained in terms of debt/GDP the demand for more funds by the treasuryis muted, thus likely causing a narrowing between US rates and the savehaven EU rates.4 Mar, 01:27 PMReplyLike2

bale002, contributor Comments (65)

Analysts, MBAs, and other self-styled experts have been calling for the bond market to crater for several years now. This article looks like acut and paste from two years ago, three years ago, five years ago.

US Treasuries are one component of the overall bond market.

In any case, as mentioned above, deflationary risks still outweigh inflationary risks which, in turn, reflect budgetary restraints, which in turnreflect the effects of globalization of industrialization on incomes of average workers: most likely, over the next 10-30 years, the incomes of

average workers (and retirees) in the countries of early industrialization and those of average workers in the newly industrialized countrieswill continue their trend towards equalization. In that scenario, inflation caused by rising wages or a crisis of production is unlikely.

Most likely we already saw the extent of the effect of tapering on long-term interest rates in the May-December 2013 period.


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Bond Market: Something Wicked Cometh This Way [iShares Trust PIMCO ETF Trust] Seeking http://seekingalpha com/article/2066533 bond market something wicked cometh this way?sour



In the meantime, there are always shenanigans going on somewhere in the world which trigger a safe-haven flight into US Treasuries,generating capital gains for those on the right side of them.

In short, long-term interest rates are more likely to remain subdued over the next 10-30 years, ask Japan, than they are to spike up by 100bps

per year which may prove to be a one-off event in the May-December 2013 period.

I would rather see articles that talk about how to navigate fluctuations within a certain range over 3-18 month periods rather than

oft-repeated, vague, generic gloom and doom like a stopped clock.

10Y Treasury 2.60%-3.25%

30Y Treasury 3.60%-4.25%Fed Funds rate 0.25% sometime in 2015.

Anything more likely and more specific than that would be interesting and useful to read.5 Mar, 09:30 AMReplyLike0

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