“The common sense case for bonds is bearish,The bond market is based on simple quantitative measures – if yields fall you will lose money in real terms because of inflation. If they go negative you are paying someone to look after your cash and you will lose money. If they rise, then prices will fall and you will lose money.”
After more than three decades of bond prices rising in the US, there is a supposition among investors that fixed income can only climb higher. Unlike equities which investors have come to understand suffer price fluctuations, bond markets are assumed to be a safe asset.
“A false market has been created in bonds by Central Banks,” says Eigen. “They have broken bond markets. Even when the economy grows and inflation rises, bond yields fall. This should not be the case. Fundamentals no longer drive bond markets – Central Banks do.”
Why are investors rushing to sign up to 10 year Spanish debt at 1.9% when not that long ago the yield offered was 8%? You are not being compensated for the risk you are taking on.”