Bond bubble is a most unhelpful analogy is a short guest post by Brad Crombie, Global Head of Fixed Income at Aberdeen Asset Management
Bond bubble is a most unhelpful analogy
Financial bubbles have existed for only marginally less time than investment markets themselves. This is because our tendency to get excited and carried away causes them.
There is, however, a serious risk of misusing the term ‘bubble’. It metaphorically implies an obvious ending: the bubble bursts. And we all know how that happens: very quickly, and very violently. You simply can’t pop a bubble gradually. Physics won’t allow it.
But financial markets don’t follow the laws of physics, even though they often appear to. There are too many complex dynamics at play.
Just because the bond market has risen for over 30 years and is now undeniably overvalued, doesn’t mean that its unravelling will be violent. Or indeed that it won’t get more overvalued. Or merely stay at ‘overvalued’ levels. We live in unprecedented times – both economically and financially.
The inherent demand for income (and therefore bonds) should not be underestimated. People will always need income, and aging populations only exacerbate the situation.
Perhaps we need to start being more thoughtful about bandying around terms like bubble inappropriately. The metaphor wont always apply. And to unthinkingly believe that it will is lazy.
Global Head of Fixed Income, Aberdeen Asset Management
Bond bubble is a most unhelpful analogy is a guest post and the views here do not necessarily concur with those of Investment Quorum. In fact, it is very often the case that we may largely be in disagreement but we respect the opinions and views of others and value their contribution to the wealth management debate. Guest posts may appeal more to some than others and may often have an industry or sector knowledge expectation.
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