Newsletter: What a Bursting Bond Bubble Looks Like

Our weekly newsletter is out, and this time we’re taking a look at the old standby of safety plays: bonds. You see, in the simplest terms, people tend to be motivated by two competing passions: greed and paranoia. When times are good, economists say that our interest-maximizing caveman brains urge us to try and get our hands on as large a slice of the resource pie as possible. However, when fortunes turn and times get tough, paranoia sets in as we try to protect every last scrap of what we’ve gained. It is this eternal psychological battle between gains and losses, risks and rewards, that shapes the markets we trade.

It’s also why so much is made of talking about risk compared to return, and it’s here that there has always been a demand for safe havens – places where people feel confident in the return OF their capital. And when it comes to safety in the last 30+ years, bonds have definitely been tough to beat. The long decline in rates (and corresponding increase in bond prices) has cemented the appearance of safety and stability. The current bond bull market has been underway for so long, it’s easy to forget that it hasn’t always been this way.

While we’re usually preoccupied with the Treasury bond bubble, our friends over at Welton Investment Corp. recently released an excellent paper as part of their Visual Insight series (click here to view the full piece) focusing on the corporate bond bubble. Like us, they’ve been wondering what the future holds for this “safe” refuge. In reality, that veneer of security is like the surface of a still pond… filled with piranhas. You see, bonds have historically had what Sean Kelly of The Samples called, “a dark side.” Just like the song, everything can be perfect and happy, right up until disaster strikes and a more somber note takes effect. Hand-wringing over our economic future is definitely not new, but in light of Welton’s work now seems like the perfect time to look beneath the placid surface to see what those murky depths contain.

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The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

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