The Debate of a "Bond Bubble" Continues

By on August 20, 2010

Doug Kass puts things in perspective by recently tweeting, “Consider the 2.72% yield on the 10 year bond equates to a “PE Multiple” of 36.5x (inverse of yield) vs. S&P PE of 12x $$”

Pragmatic Capitalism provides a counterpoint to those claiming the existence of a bond bubble in their post, THE MYTH OF THE GREAT BOND “BUBBLE”:

Some market participants have gone so far as to compare the U.S. bond market to the Nasdaq bubble. This is simply not a fair comparison. The Nasdaq declined 90% from peak to trough. If you buy a 10 year government bond and hold it to maturity you will receive your principle back in full in addition to the coupon payments. If inflation jumps from the currently low levels to 5% you will be sacrificing 2.5% per year in real terms. Certainly not a winning pick, but nowhere near what the apocalyptic results of the Nasdaq bubble were.

Of course there was the Bespoke survey of 10 influential financial bloggers in December 2009. They were unanimous about one thing; that long bonds would fall in 2010. They all probably wish they had purchased more bonds back then since long term fixed income has been one of the best asset classes to own YTD.

Sources: Doug Kass “Twitter”, Pragmatic Capitalism, Bespoke Investment Group

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