Finance
Harvard historian expect that 2017 will be the worst year of “obligasjonsboblen” cracks.
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One of the year’s most pessimistic projections for global obligasjonsmarkeder comes from a Harvard historian who believe the bond market may be in a bubble that will lead to enormous losses for investors around the world.
A bond is an investment in the debt.
Among the highest ever
“looking back at the data from eight centuries back, I find that the bull market in 2016 really were among the highest ever measured,” writes Paul Schmelzing, who is visiting scholar at the Bank of England and a phd at the renowned Harvard University, in a blog post Wednesday. Schmelzing researcher at the international finanshistorie. The blog, called the Bank of the Underground, is run by persons connected to the Bank of England.
the Term bull market is used to describe a market that increases in value. Global government bonds, led by us treasuries, increased in value during the first half of 2016 before investors began to sell off bonds when the gop presidential candidate Donald J. Trump won the presidential elections in the united STATES in november. It was partly as a result of expectations that Trumps politics should lead to better returns in the equity markets.
Worse than ’94
Schmelzing writes further that the story suggests that there will be a reversal of the bull market for bonds in the course of 2017, which will be worse for investors than the global obligasjonskrasjet in 1994.
In the 1994 crash the us bond market. It triggered an international dragsug for the bonds, which, according to Fortune Magazine led to values for 1500 billion dollars disappeared in the course of the year. Fortune Magazine described the year as “the great obligasjonsmassakren”.
the Harvard economist is not the first out with such dommedagsspådommer. Hedge fund billionaire Paul Singer warned investors in hedgefondet Elliott Management last summer that the global bond market is “broken”. He believed at the time that the end of the situation in the bond market, where bonds for over 13.000 billion dollars were traded with negative interest rates, would be “surprising, abrupt, intense and great”.
“Perfect storm”
Schmelzing shows that he now sees signs that this fear may prove to be well founded, and points out that a pessimistic reader will recognize this as a “perfect storm” in the bond market.
According to Bloomberg, which also reviews the case, it was the last quarter of 2016 the worst quarter for treasuries since 1987.
Harvard historian explains the possible “perfect storm” in 2017 with the global inflasjonsnivåer, thus the rise in prices for goods and services, is expected to rise.
Increased inflation leads as a rule to lower obligasjonspriser and higher interest rates, because the purchasing power of the return on the bond will be lower if prices increase. It means that investors will require higher interest rates on their bonds to make up for the expected lower purchasing power on the return.
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