February 6, 2013
Attain Capital
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As long as we’ve been watching for a sustained downtrend in bonds (rates higher, bonds lower), the current slide from mid-November’s peak has definitely started to get our hopes up. But is this the bursting of the bond bubble? Not everyone is convinced that it is. Neil Irwin over at the Washington Post is one of them, and he has staked out his position in an article entitled “No, there probably isn’t a bond bubble.” Irwin writes:
But no bubble fears are as widespread as those for the markets for government bonds — in the United States in particular but also in many other nations. It almost passes as a mark of seriousness to argue that Treasuries are the next big bubble to pop, the biggest in a long series that also included the stock market bubble of the late 1990s and the housing and mortgage securities bubble of the 2000s.
That kind of talk heats up whenever bond prices start to fall a bit, as they have in the last few weeks. (The phrase “bond bubble” appeared in major world publications included in the Nexis database 28 times in January, up from two in January 2012). And, yes, bonds have been in a remarkable 30-year rally, their prices climbing as interest rates have fallen almost constantly since the early 1980s.
Of course, bond prices could drop (and, conversely, longer-term interest rates rise). But that change is more likely to occur for good reasons – because the economy is getting back on track — than for bad reasons, such as out-of-control inflation.
So, I’m not particularly worried that Treasury bonds are a bubble about to pop.
Irwin goes on to outline his list of reasons why T-bonds don’t qualify as a bubble, and we do have to grant part of his argument – the rise in bond prices isn’t really being driven by a slew of investors buying bonds in the expectation that they will be able to flip them for a quick profit. So a drop in bond prices isn’t likely to be cataclysmic in the way that house prices were in 2008… the market is deep and liquid, and unlikely to fall victim to the kind of panic selling that has causes true bubbles to “pop” in a sudden and dramatic collapse in prices. After all, you can always just hold your bonds to maturity to get all of your initial capital back. At the same time – even a small rise in rates can create a lot of pain for bond investors (see our newsletter on Welton’s piece about this).
Irwin hasn’t convinced us that bond prices are necessarily going to remain stable, either. Ultimately, his argument boils down to the idea that expectations about future changes in interest rates are already priced into the market, and only a surprise change – like the economy growing faster than expected (leading to a surprise Fed rate increase) – will cause a drop in bond prices.
But that’s the thing about markets – they’re always priced efficiently, except when they aren’t (or, to put it another way, markets are rational until they aren’t). And the recent multi-month slide in bond prices has coincided with a steady climb in the stock market. With all the talk of the “great rotation” out of bonds and into stocks, it’s entirely within the realm of possibility that bonds will gradually fall, rates will gradually rise, and we’ll slide into a bear market for bonds absent any kind of sudden, sharp drop.
And in the end, all managed futures needs from the bond market is for a sustained drop over a sufficiently long period. Whether the bubble pops or slowly deflates over the next few years, we’ll still be rooting for a bear market in bonds, and all of the benefits that’s likely to bring to managed futures.
Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.
The programs listed here are a sub-set of the full list of programs able to be accessed by subscribing to the database and reflect programs we currently work with and/or are more familiar with.
Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history. Individuals cannot invest in the index itself, and actual rates of return may be significantly different and more volatile than those of the index.
Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.
Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.
Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.
RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.
Limitations on RCM Quintile + Star Rankings
The Quintile Rankings and RCM Star Rankings shown here are provided for informational purposes only. RCM does not guarantee the accuracy, timeliness or completeness of this information. The ranking methodology is proprietary and the results have not been audited or verified by an independent third party. Some CTAs may employ trading programs or strategies that are riskier than others. CTAs may manage customer accounts differently than their model results shown or make different trades in actual customer accounts versus their own accounts. Different CTAs are subject to different market conditions and risks that can significantly impact actual results. RCM and its affiliates receive compensation from some of the rated CTAs. Investors should perform their own due diligence before investing with any CTA. This ranking information should not be the sole basis for any investment decision.
See the full terms of use and risk disclaimer here.
Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.
The programs listed here are a sub-set of the full list of programs able to be accessed by subscribing to the database and reflect programs we currently work with and/or are more familiar with.
Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history. Individuals cannot invest in the index itself, and actual rates of return may be significantly different and more volatile than those of the index.
Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.
Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.
Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.
RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.
Limitations on RCM Quintile + Star Rankings
The Quintile Rankings and RCM Star Rankings shown here are provided for informational purposes only. RCM does not guarantee the accuracy, timeliness or completeness of this information. The ranking methodology is proprietary and the results have not been audited or verified by an independent third party. Some CTAs may employ trading programs or strategies that are riskier than others. CTAs may manage customer accounts differently than their model results shown or make different trades in actual customer accounts versus their own accounts. Different CTAs are subject to different market conditions and risks that can significantly impact actual results. RCM and its affiliates receive compensation from some of the rated CTAs. Investors should perform their own due diligence before investing with any CTA. This ranking information should not be the sole basis for any investment decision.
See the full terms of use and risk disclaimer here.