Peter Schiff: A Very Violent Move in the Bond Market
It is considered that a very violent movement is currently established in the bond market. Thus, it is appropriate to emphasize that the former OMB director of the Reagan administration, David Stockman, has called this the “mother of all bond bubbles”. If so, a question arises, has that bubble burst? It remains to be seen, but the bonds were forged last week.
It should be noted that the bond market (also known as the debt, credit or fixed income market) is a financial market where participants buy and sell debt securities, usually in the form of bonds. References to the “bond market” usually refer to the state bond market because of its size, liquidity, lack of financial risk and, therefore, sensitivity to interest rates, the bond market is often used to indicate changes in interest rates or in the form of the yield curve.
Thus, it is understood that the bonds have moved more or less in conjunction with gold in recent weeks as perceptions of safe trade.
The recent decline could be established as a problem
Bond prices have fallen in the neighborhood from 5 to 6% recently, thus, this would not be considered as important in the stock market, but when the price of a bond falls 5% in a week, especially a bond of the Treasury, that is quite significant. Investors do not expect their “safe” assets to decrease so much.
Given that many investors are playing in the bond market with the expectation of taking advantage of the short-term price increase, not of maintaining the bond to collect a miserable percentage interest of one point, the recent decrease is problematic.
Likewise, there are many investors who justify the price of the shares based on their relationship with the bonds. They say that in relation to interest rates, the shares are not expensive. But this is relative to bonuses that are extremely expensive.
In this way, one more question arises, how long can the bond bubble continue to inflate? The answer is really uncertain because once the bond bubble explodes and interest rates rise, that changes the valuation of the shares. Therefore, it could be said that the only way that the shares are not overvalued is assuming that interest rates will remain permanently low.
Source: Peter Schiff | SchiffGold