Bloomberg has an article about record money flowing into bonds over the last 2 years. A total of $480 billion has rushed into bonds compared to $497 billion that went into dot com stocks between 1999-2000. So does this constitute a bubble? Many economic commentators and bloggers have suggested as much. They regurgitate the usual reasons why bonds will do poorly in the future and should be avoided: low yields, purchasing power to be eroded by inflation, the dangers of following the herd into an investment. I do not think we are in a bond bubble--yet. In fact, investors are simply responding to the Federal Reserve's interventions and market distortion. Since the Fed took rates down to zero, it does not make sense to hold funds in money market accounts, but investors are still fearful of equity markets.What are they to do? Invest in bonds.
Read more >>
