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Source: Bianco Research


Fancy yourself a contrarian?

The crowd hates bonds. How about you . . .  ?




UPDATE February 6, 2013 8:11pm

I am not suggesting backing up the truck with 10 years, I was trying to make a snarky point about crowd opinion.  I guess it was too subtle?


Category: Contrary Indicators, Fixed Income/Interest Rates

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

26 Responses to “Economists: Don’t Buy Bonds (so you should buy bonds)”

  1. catman says:

    This ones right up there with calling the turn in the Japanese stock market. Ask Jim Grant.

  2. Smokefoot says:

    I have bonds, but the long term ones I own individually and plan to own until maturity. The only bond fund I have is short term.

  3. Pantmaker says:

    Is 2% for 10 year money acceptable? If it is great…go for it… if rates do improve you are going to take a hit on the the value side…if they improve a lot you are going to take a big hit. If that doesn’t matter or you don’t think rates will improve go for it. For me personally, I’m not going to be the exit strategy for someone holding 10 year bonds in this market. It makes more sense to wait. I would say the same for equities here too.

  4. Ramstone says:

    I’ll be a contrarian if the price is right. 30 bips on a 2 percent ten year isn’t worth it.

  5. rd says:

    Its a bet on recession and stock market correction/crash versus significant economic improvement allowing Fed to raise interest rates.

    Even these over-priced bonds will rise if the over-priced stock market drops. If the economy improves significantly over the next couple of years, then the stock market is not over-priced, interest rates rise, and bonds plunge.

  6. mad97123 says:

    Care to bet against the all powerful Fed’s stated goal?

  7. Joe Friday says:

    The crowd hates bonds

    Isn’t that the same “crowd” that has repeatedly predicted spiking interest rates and runaway inflation ?

  8. blinblin says:

    Yep…I like ‘em.
    I think bonds are the place to be until the next shakeout.
    2.2% seems to be a good place to exit on the 30 yr.

  9. BillG says:

    The “crowd” may hate bonds but there’s enough people (or the Fed) buying them that interest rates are near all-time lows. Stocks are probably due for a correction but I wouldn’t go long on bonds.

  10. Bam_Man says:

    I like bonds here too…but only zero-coupon Treasuries in the 12-15 year range. The recent “rotation to equities” has created a nice amount of value in that space.

  11. GZR says:

    Why would anyone buy a bond now (@ 2%nominal–probably 0% real interest)? What would a bond be worth at 1% interest? 0% interest? It may be better to ask–What would the world look like in those conditions?

    Then, compare that to what the value of a bond would be at 5,6% and maybe a lot higher.
    The risks seem to be very little up versus a great deal of down.

    What am I missing?

  12. ancientone says:

    I can appreciate going against the crowd as a strategy that usually makes money, but with rates this low, does it make sense to buy bonds? They have very little room to go up, and very long way to go down. What kind of time frame are we looking at?

  13. Joe Friday says:


    What am I missing?

    Perhaps that treasuries have outperformed equities over the previous 5-year, 10-year, 20-year, 25-year, and 30-year time frames ?

  14. swag says:

    I sold out of some TIPS funds (that return was coming from ZIRP, not inflation) and stuck the proceeds into a short-term bond index fund. Kept my LQD. We’ll see how that all goes. Best wishes, everyone.

  15. mad97123 says:

    GZR, a bond that you bought at 2% would be worth 50% more at 1%. What would the world look like at 1%? Today.

    What would our government debt look like at 5% or 6%? What would the value of pension fund asserts look like at normal rates?

    Not going to happen any time soon for the same reason it doesn’t happen in Japan.

    Nirvana for the Bears if it does.

  16. techy says:

    From what I see capital is available as much as you want, but jobs/income opportunities are scarce. Not sure how interest rates can go to 5% if this conditions persists? Unless we are assuming that congress gets together and passes the infrastructure bill pumping a trillion dollar into the economy and lo and behold jobs are everywhere, wages are going up etc… But I can gaurantee you that 40% of the population living in the bible belt do not want to prosper under a black liberal’s presidency…they would rather live under misery so that their guy can get elected.

  17. GZR says:

    Joe Friday


    What does my comment have to do with out performing equities?
    I was talking about the risk of capital loss in bonds versus the possible (meager IMO) potential gain from here.

    Yes, I am aware of the 30 years record in bonds. My handle should tell you that I enjoyed some 12%’s from the early 80′s and I also made some money from 30 yr zeros in the late 90′s that I wish I had held longer.

    As the old saying goes, What have you done for me lately? Surely, you don’t think thatthat extraordinary past performance will continue at the same rate into the foreseeable future? Does the word asymtote sound possible?


    50% more??–really? I guess I need to borrow your calculator.

    I wasn’t talking about what government debt would look like, but rather what your (my) bonds would look like if the interest rate changes. I see high risk versus reward ratios here.

  18. Cooter says:

    Just because the economy might suck doesn’t mean yields need to be <2%. Since 2009 the Ten Year Yield has ranged between 1.4% and 4%.

  19. Joe Friday says:


    What does my comment have to do with out performing equities?

    Eh, the other side of the coin. The same “crowd” that is advising not to buy bonds is advising to buy equities. That’s the story.

    I was talking about the risk of capital loss in bonds versus the possible (meager IMO) potential gain from here … As the old saying goes, What have you done for me lately? Surely, you don’t think thatthat extraordinary past performance will continue at the same rate into the foreseeable future?

    Do I “think” it could happen ? Sure. Even though the “crowd” has repeatedly predicted it would not, it has indeed kept happening.

    Am I predicting it will happen ? No. But several people who have made the correct calls all along, say that it will.

  20. mad97123 says:

    GZR, you buy a 2% bond today for $10000. Tomorrow the rate is 1%. How much principle do you have to put up to buy the same yield? $20,000. You do the math, that looks like a double to me.

  21. mad97123 says:

    GZR, sorry, I see I did stated it backwards, it’s a 50% principle loss going from 1% to 2%.

  22. GZR says:

    Joe Friday

    Of course, it is possible that the “crowd” can be wrong on both counts. My point is that it is more a matter of risk than a matter of allocation. Could it happen, of course. Are the odds with us at this time? I have found Gary Shilling has a very good touch for this subject. So I don’t know. I think the odds are not as good today as they were when interest rates were a lot higher.


    I enjoyed the exchange.

    I like the old Sen. Everett Dirksen quote, “A billion here, a billion there, pretty soon it adds up to real money” lol

    To finish my argument, I think that there is not as much to gain from present levels as there is to lose. I certainly have made my share of mistakes, so who knows?

    ps –Does your login name contain your zipcode?

  23. mad97123 says:

    GZR, I’m just trying to rationalize why I would maintain a bond allocation when it seems crazy. Maybe we do go lower since the ‘great rotation’ side of the boat seems crowded. As Mauldin frequently notes, you can’t call yourself a real trader until you’ve lost a bunch of money shorting Japanese bonds over the last 20 years.

    Yes that is my zip.

  24. ricecake says:

    I have no idea what to do. Everyday I’m watching listening to all these economic financial shows and everyday getting more scared + confused. So I refuse to play their game and just stand and watch.

    I have some of my money in TIPs and rest (the large portion) I just leave it in money market funds. At least I can sleep well knowing I still have all my capital intact. At least.

    May be one day the market will crash again so I can get in. I’m waiting patiently.

  25. Cooter says:

    Just a thought – maybe it isn’t nominal rates that will matter so much for 2013, but interest rate volatility?

  26. GZR says:


    Your first sentence makes a lot of sense. I think a lot of us are right there. What to do?

    Maybe it is time to look at the risk reward ratio and accept that it is ok to do nothing.

    Thx for the answer. I am in the next county. 784o325 cell. A call would be welcome.