bank of japan intervention, page-9

thanks paulb, the worrying trend in the bond market is the prices people are paying are now ridiculous.

5 year bonds (a treasury note) - investors are preferring to pay $120 (for $100 par value, a 20% premium) to earn 1.5% over this period.

Even if the bonds only hold this value - this is 7.6% gross income over the whole period.

5yr bonds only have to dip to below $110 and the investment is nil or negative.

the point is, they prefer to accept this than risk it in equities, gold or other places. the fact that this trend has so far sustained is either a sign of rampant stupidity, or something major is brewing.

you can see the trend changes very distinctly on 2, 5 and 10 year bonds leading into Dec07 as being a very similar trend - bonds starting moving around Jun07 preGFC.

the difference then was you were only paying $108 (for $100 par) to get 4% interest on 5 year notes - so those people made a killing in both capital gain and interest.

at some point either the bond market bubble will burst, or the economy is going to capitulate further to justify overpaying for low interest bonds.

we know there is a trainsmash coming but we don't know where to look. they don't put money in the bank (call or term deposits) because the interest rates are near zero.

I can't see it being a happy time ahead for many people. It's just a matter of where it happens and when I think.

I've done a 5 year performance summary of 2,5 and 10 yr prices vs yields versus indexes versus currency. the people who won handsomely are the ones who got into bonds prior to Jun2008 over 12 full months before the steepest part of GFC, and almost 2 years before the bottom of the equity market.

amazing. it might not have looked like smart money at the time, but it was a phd professor by early 2009. now however it seems inexplicable in the absense of a total market meltdown.

maybe war is coming.