“We are in a bond market bubble that’s beginning to unwind.” This is the statement of Alan Greenspan. Is he right? We invite you to read our today’s article about the US bond market and find out whether it is in bubble or not – and what does it all mean for the precious metals market.
Bond yields are in an upward trend since 2016/2017. And they hit the accelerator again last month. The 10-year Treasury yield topped 3.2 percent, the highest level since May 2011. Other yields have also increased recently: on 30-year Treasuries hit 3.40 in October, while on 5-year US government bonds jumped above 3 percent, as one can see in the chart below.
Chart 1. Daily yields (in %) on US Treasuries: 30-Year (red line), 10-year (orange line), 5-year (green line), 2-year (velvet line), 1-year (blue line) from January 2009 to October 2018.
For some analysts, such high levels are not sustainable. However, when you adopt a broader perspective, you will see that the bond yields are not extremely high. As the chart below shows, their current levels are still historically low. The bond yields used to be much higher in the past – and not only in the 1970s, when inflation raised its ugly head, but even in the early years after the Great Recession.
Chart 2. Monthly yields (in %) on US Treasuries: 30-Year (red line), 10-year (orange line), 5-year (green line), 2-year (velvet line), 1-year (blue line) from April 1953 to September 2018.
Actually, many analysts claim the opposite, arguing that bonds prices, which move inversely to yields, are too high. For example, Bill Gross, a famous bond investor, believes that the bear market in bond prices has just begun. Similarly, Alan Greenspan, the former Fed Chair has recently said that “we are in a bond market bubble that’s beginning to unwind”. And, at least this is an impression after reading an excerpt from the upcoming book by Paul Volcker, it seems that he would agree with Greenspan.
