The German 10 Year Bund Effectively a Call Option at 30 Basis Points…. sexy enough ?!?
It has gotten so ridiculous in the bond markets that I think investors have forgotten what bonds actually are as an asset class, they trade based on price appreciation like stocks, and this perverted mentality has completely ignored the risk component of what bonds represent as debt obligations.
We have a problem central banks, and it isn`t the problem you are worrying about, forget sluggish growth, we have the biggest financial bubble brewing right now in the largest financial asset class in the world, and the German 10 Year Bund yielding 30 basis points is a disaster waiting to happen for any investor levering up their balance sheets with this ridiculous bond investment.
Seriously what is the downside risk of this trade, does the German Bund go down to yielding only 15 basis points? And what after the deflationary cycle the inflationary, or even hyper-inflationary cycle takes off? Remember it isn`t like Germany doesn`t remember the hyper-inflationary cycle. So what is the upside of this trade, it really is off the charts for the next 10 year period from a risk reward standpoint.
All of these European Bonds are going to be extensively underwater from current price and yield levels for any holders at anywhere near these valuation metrics 5 and 10 years from now. This is like buying real estate in a hot real estate market, with no down payment loans, no documentation loans, and at zero percent borrowing costs with no borrowing limits, it is the housing crisis on steroids.