The bond market has had a remarkable 30-year bull run.
Earlier this week, yields on the benchmark 10-year note and 30-year bond fell to new lows.
Gluskin Sheff’s David Rosenberg thinks that if there’s a bubble forming in any market, it’s in bonds.
But Robert Shiller, an authority on bubbles, doesn’t see the froth.
In an interview with Time Magazine, Shiller said of the current low yield environment: “It doesn’t clearly fit my definition of ‘bubble. It doesn’t seem to be enthusiastic. It doesn’t seem to be built on expectations of rapid increases in bond prices.”
But if there’s any sign of a bubble, it’s the fact that there is an expectation for bond prices to continue rising.
And like previous asset bubbles, investors have reasons to justify this rally. Deflation risks in Europe and an ageing, retiring population are driving the demand for bonds and keeping rates suppressed.
But the key difference, and why Shiller says this isn’t a bubble, is that bonds are not likely to return as much as they have in recent years. That’s even if bond yields, which have an inverse relationship with their prices, stay low. Bond guru Bill Gross called this the “new normal.”
Here’s a look at the three-decade long decline of the 10-year note yield from Nuveen’s Bob Doll.
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