In short, inflation eats away at bond returns. That's why the specter of rising inflation has triggered a global government bond selloff.

... the stakes are high: a one-percentage point increase in interest rates equates to $2.1 trillion in losses for global investors, based on a Bloomberg Barclays sovereign-debt index.

... Just look at the ... iShares 20+ Year Treasury Bond (TLT), which tracks the performance of long-term U.S. Treasuries. You can see that TLT has plunged 9% since July. That's a huge move for such a short period... it might not take much for this to turn into a complete bloodbath. Bloomberg wrote last week: "Rates are rising from a very, very low base, which means there's lots of downside and very little upside" for bond prices, said Kathleen Gaffney, a Boston-based money manager at Eaton Vance Corp...

... The global bond market is a $100 trillion market... If it runs into serious problems, those problems will spread to the stock market. This is actually already happening. The Wall Street Journal reported on Monday:

The Dow Jones Industrial Average fell for a third consecutive month, its longest stretch of declines since 2011. The S&P 500 recorded its worst month since January, and the Nasdaq Composite snapped a three-month winning streak.

Comments: Be the first to add a comment

add a comment | go to forum thread