Bonds meet these four criteria for being in a bubble

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On a day the yield on the 10-year German bond












TMBMKDE-10Y, -2.44%










 hit a record low and a fund manager survey found the most bullish view on bonds in close to 11 years, it’s worth asking if the mania for fixed income that is gripping markets is justified.

The Call of the Day goes to Bloomberg columnist John Authers, who discusses whether bonds meet the four criteria for being a bubble (subscription required).

The short version is yes.

The longer version cites the opinions of Longview Economics strategist Chris Watling, employing the framework from ”Manias, Panics and Crashes,” which in defining a bubble asks whether cheap money underpins it, whether debt is taken on during the bubble-up on margin, whether the asset price has a notably expensive valuation and whether there’s a narrative to explain away the high price.

Reasons one, three and four are certainly met. The rationale for two is a little complex, but argues that major central banks, in creating bank reserves to engage in quantitative easing, have done so, as have professional investment advisers engaging in momentum strategies.

The market

Coming off a 389-point drop for the Dow Jones Industrial Average












DJIA, -1.48%










 on Monday, U.S. stock futures












ES00, -0.11%











YM00, -0.13%











NQ00, -0.16%










were once again lower.

The yield on the benchmark 10-year Treasury












TMUBMUSD10Y, -0.25%










 fell to 1.63%.

Gold












GC00, +1.35%










 futures rose while oil futures












CL.1, -0.35%










 edged higher. Banks led Europe stocks












SXXP, -0.53%










 lower for a third day and Asian stocks












ADOW, -1.12%










 fell.

The buzz

The Bank of America Merrill Lynch fund manager survey found the most bullish view on bonds since Nov. 2008. A People’s Bank of China official pledged not to devalue the yuan after being called a manipulator by the U.S. Treasury last week, while Hong Kong flights were again cancelled due to protests. Argentina will be in focus after stocks












SPMERVAL, -37.93%










 and the Argentine peso












ARSUSD, -0.042553%










  were hammered on Monday after the weak showing for President Macri in the country’s primaries.

Data is coming at 8:30 a.m. Eastern on U.S. consumer prices for July, which could rise due to increased energy costs. Markets may focus more on the core number given the big jump in June. “I am especially interested to see the figures for restaurants and household operations. These are two areas that are especially labor-intensive, focused on the low end of the wage scale,” wrote Stephen Stanley, chief economist at Amherst Pierpont Securities.

The chart


It never sounds good for an index to reach -44.1, which is what the ZEW indicator of economic sentiment in Germany did in August. That’s the poorest reading since Dec. 2011 and worse than economist expectations, and comes as the export powerhouse reels from both the U.S.-China tensions and the uncertainty gripping trading partner Britain.

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