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On the Cusp of a Bond Bubble?

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  • Description

    FBN’s Gerri Willis on the concerns over the outlook for the bond market.

  • Duration 2:15
  • Date

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Do you remember the dot com bubble the NASDAQ lost nearly 80% 80 of its value in the -- year market selloff that ended in 2002.

As investors decided maybe earnings really do matter.

And there with the housing market crash which destroyed about a third of US -- -- -- more in many markets.

Now some believe we are on the cusp of a bond bubble.

In the aftermath of the fall of Lehman and the unwinding of the housing bubble investors began to turn to bonds especially treasuries in -- us it would seem to -- payment.

Now many believed to many of us have -- your savings there and the consequences well they could be dire if rates were to spike unexpectedly.

Have died in Iraq.

While -- strong durable goods order report sparked sales of treasuries last week yields move higher but not to stratospheric levels.

The ten year treasury yields rose to just over 2% before falling today just below that level.

But it's worth considering what what happened what would happen.

If the Federal Reserve took away the punch bowl and allowed rates to rise today.

The Wall Street Journal says bond prices are more volatile than usual because of a -- a bond -- because rates are so low -- though.

Prices are even more sensitive to yields -- in -- jargon has increased their duration.

Or in other words flow yields means more -- the value of the bonds it is in a lump sum received when they mature and that makes the price more volatile.

And here's a map of -- according to the Wall Street Journal.

If current ten year treasury yields rose to more normal levels say 4%.

Prices would fall from 9725.

To 81 at 17%.

Hit think about it.

That's a big -- for somebody who believes there in a super safe investment.

Of course investors can hold their bonds to maturity but who wants -- stick around in an investment yielding less than 2%.

For a decade if return certain rising elsewhere.

The picture if and when the economy -- -- a sustained recovery the bond market could bite those over invested in the asset class and remember.

In the past two years alone investors -- more than one trillion dollars into global mutual an exchange traded bond funds.

You know what it's beginning to -- -- just a little like 2002.

All over again.

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