The Big Story – Is The Bond Bull Market Over?

Featuring Julian Brigden, Raoul Pal, Alex Gurevich, Michael Oliver and Jeffrey Snider

Has the multi-decade bond bull market finally run its course and what will that mean for the economy and your portfolio? To answer this question, Real Vision brings together an exceptional group of fixed income and macro experts, as Julian Brigden, Raoul Pal, Alex Gurevich, Michael Oliver and Jeffrey Snider debate the next move for U.S. Treasuries.

Published on
24 January, 2018
Topic
Macro, US Economy, Sentiment
Duration
27 minutes
Asset class
Bonds/Rates/Credit
Rating
27

Comments

  • MR

    Max R.

    24 5 2018 09:21

    0       0

    Great to see diverse opinions positive and negative in the same presentation.

  • ML

    Michael L.

    5 2 2018 22:08

    0       0

    Thank you RealVusion for this video which proved incredibly timely!!!! Especially the long put option ideas!

  • PS

    Paul S.

    1 2 2018 02:04

    0       0

    Everytime I listen/read Alex - I just think he is going to 'blow up' at some point
    But I also accept he is likely 200% smarter than I am...

  • MG

    Michael G.

    30 1 2018 14:37

    0       2

    Clearly women are not good enough to talk about bonds!

  • RO

    Robert O.

    29 1 2018 03:23

    4       0

    While there is a healthy difference of opinion concerning bond yields and its effect on the equity market, none of the contributors stated that they felt that there was an imminent crash ahead in either the bond or equity markets. The other piece of useful information was that the commodity market (including metals) appear to be in the early stage of recovery and may rise significantly later this year or in 2019. So instead of adding new money to a high stock or bond market, it seems to me that a safer option for new money would be a commodity ETF with a in buy in over the next 6 months to 1 year. So if either the economy improves or inflation increases then commodities would likely benefit. Buying a few ETFs would make this relatively easy.
    If commodities sell off for some reason, they won't go to zero as mentioned, which suggests that their down-side risk is limited from this point but their upside potential may be quite high. I like MSA for their track record and for giving me enough time to think and position myself for the changes that they see coming in the next 6 months to 1 year.

    • MM

      Michael M.

      30 1 2018 10:29

      0       0

      Solid points/good observation

  • NH

    Neil H.

    29 1 2018 02:20

    0       0

    I continue to wonder who Willy these bonds. Foreigners bought them because yields in Europe and Japan were very low,now they are rising. Middle East were buyers but that seems to be reversing. The fed does not want to old them anymore.chinas one belt one road will not help the u.s. Treasury market. Pension funds will not buy with yields below 3 percent,if they do how do they earn a 7 percent total return. Can someone please explain this to me

  • SD

    S D.

    29 1 2018 01:20

    4       1

    The prices for housing, transportation (oil/gasoline), and food are all rising sharply.
    Retail food prices are through the roof. They've been rising noticeably for years.
    Producer prices are higher. Asset inflation is off the charts.
    The only possible conclusion is that the CPI statistics are dodgy.
    So this is now politics.

  • JD

    Jonathan D.

    27 1 2018 18:02

    1       0

    No inflation? I must be looking at the wrong commodities and crb etc charts.

    • MO

      Mike O.

      27 1 2018 22:40

      1       0

      You may want to check out the Chapwood Index: http://www.chapwoodindex.com/

      (It seems to be running around 10 - 11 percent currently, but then again, it's likely been running at that percent for a lot longer [the web site only reports a yearly as well as a 5 year average that is based upon actual goods purchased in real cities around the US])

  • JD

    Jonathan D.

    27 1 2018 18:01

    0       0

    The final chart. 4 decades and linear? Seriously?

  • TH

    Timo H.

    27 1 2018 08:18

    1       0

    The dollar is going down while the yields are going up. It really looks like the dollar and the t-bond markets have been wounded. The only question is, whether the wounds heal or is this terminal?

    • RM

      Robert M.

      27 1 2018 22:14

      3       0

      DXY moves on the real rate differential with its basket (mostly euro). Try charting DXY YoY Vs (US Markit PMI less headline CPI) less (EZ Markit PMI less ECBs HCIP)).
      Note: the markit PMIs and inflation measures have to be normalised (start their respective time series off at 100).
      DXY is the hardest instrument to predict from macro, there are 4 variables in the above formula alone and it also moves on its twin deficits to GDP ratio. Real rate difference is useful.

  • TK

    Thomas K.

    26 1 2018 23:10

    3       1

    Was anyone else surprised by the dearth of reference to quantitative tightening? While Julian Brigden obliquely referred to it, most of the commentators ignored/dismissed the central banks' role in the bond market. If we look at M2 growth in real terms, we are rapidly transitioning from significant global monetary base expansion to something much slower. I think this forcing function deserves more attention. Effectively, we're looking at the early stages of a demand shock in the bond market, right now in treasuries and MBS paper...looking a year down the road, Draghi might be doing the same thing across a much broader range of debt securities. With: 1) global M2 expanding much more slowly due to central bank tapering/balance sheet reduction, 2) US deficits rising, and 3) various mercantilist/petrodollar states more vocally questioning the prudence of UST holdings as reserves, the supply/demand balance -- at least for Treasuries -- seems in question. Even preceding the nascent tightening cycle, there were already murmurs of change in market dynamics: 2a-7 reform authored by the SEC and Treasury several years ago was a warning shot that too few have noticed (at the very least, the timing was convenient given trends in the TIC data).

    While in the long-term I agree with Raoul that demographics ultimately dictate lower yields, the big question is whether we must first endure a period of higher rates that serves as the catalyst for the next big downward move. Ultimately, this was an interesting piece, but I think it would have been better in a somewhat longer format with questions that elicited some deeper insights.

    • RM

      Robert M.

      27 1 2018 22:01

      3       0

      But look at what bonds did with each QE introduction and removal since the start in 2008. They reacted contrary to any notion of demand/ supply logic. So with QE intro ie: more demand, they fell and with QE removal ie: less demand, they rallied hard.
      I understand this is because the QE demand was small compared to the stock of bonds. And the intro of QE forestalled all fears of deflation from economic slowing thus increasing inflation expectations for all those holders of the stock of bonds. Voila, bonds fell and vice-versa.

    • RM

      Russell M.

      31 1 2018 13:54

      0       0

      I too would have liked to hear some direct discussion of the effect of the Fed planned asset sell off of $2 Trillion and the effect it would have on bond prices. Seems to me that $2 Trillion less chasing bonds on interest rates and tend to push the stock market down.

  • MO

    Mike O.

    26 1 2018 16:59

    2       0

    What about municipal bonds in the US? Seems like they are going to be a problem much sooner. What will be the impact of an implosion of the many overextended states and municipalities who can't service their debts? What will be the ripple effect?

    • MO

      Mike O.

      27 1 2018 20:47

      0       0

      But, then again as they say, "what can go wrong?": https://www.themaven.net/mishtalk/economics/illinois-ponders-pension-moonshot-gamble-107-billion-bond-sale-tUi7th6vcEOgRAfYpiKZgQ

  • DM

    Davis M.

    26 1 2018 01:45

    6       0

    We have had significant inflation the past 30 years and interest rates have been going down. The government and economists talk about have inflation is a good thing (at the right level!). The past 10 years my health insurance has tripled, I can't save enough yearly to keep up with my daughter's future cost of college, and look at the increases in food cost (http://www.visualcapitalist.com/decade-grocery-prices/). On top of the inflation, wages haven't kept up and consumers have been making up the difference with debt. Does inflation need to increase more to have a significant impact on interest rates OR does the narrative just need to change (and the perception of what is really happening to consumer prices)?

    • AP

      Alex P.

      26 1 2018 02:17

      1       0

      Jeff's doppelgänger is Ruxin

    • RM

      Robert M.

      27 1 2018 22:23

      0       1

      I don't doubt the inflation figures given that the billion prices project shows them broadly right.
      Those education and health issues need to be sorted out by taking from the rich and giving to the poor. The pendulum has clearly swung egregiously too far recently in the rich's favour.

  • DS

    David S.

    25 1 2018 23:40

    1       0

    China needs to raise a lot of capital to fund the one-belt-one-road project which is now reaching Latin America plus debt problems within China. I was surprised that the change in Chinese purchasing of US treasury debt was not discussed by anyone in this video, even as a caveat. China owns about $1.1 trillion in US Treasuries after reducing it holdings from $1.3 trillion in 2016. Chinese sales of US Treasuries could be a tipping point for higher rates. DLS

  • CM

    C M.

    25 1 2018 17:04

    0       0

    Now if you can do an analysis on this ramp up in stock market prices. Last 3 months, market up around 21% compared to a similar time period in 1929 of 29%. If a crash ever occurs, this will certainly impact the demand for treasuries and interest rates.

  • BM

    Bryan M.

    25 1 2018 07:51

    2       2

    Wow! I can't believe they all missed the supply/demand equation going on in Treasuries. Don't they listen to the news? China and the rest of The Brics are gonna dump treasuries BIG TIME, it's just a question of when not if so, econ 100 says when ya got too many sellers and too few buyers, prudent bystanders should duck.

    • RA

      Robert A.

      25 1 2018 10:40

      2       0

      Not one mention from the bulls about supply. COT report shows a large short position - but Fed and other CBs are just a tad bigger. A long term trend that I'm watching which should serve to push U.S. borrowing costs higher is the internationalization of the RMB - which is the a goal of One Belt One Road (in my view) and the long term primacy of the U.S. dollar as the world's reserve currency. Not saying the dollar is going anywhere, but I think China is looking to offer countries in its orbit an alternative.

  • DR

    Daniel R.

    25 1 2018 06:17

    5       0

    Don't know what to do with this. I guess you're supposed to pick your favorite mechanism, crystal-ball chart, or maybe just pick your favorite analyst. Although Messrs Gurevich and Snider are always interesting to me, fwiw I'll be watching the export surplus countries (China, Germany etc.) and their willingness to keep buying treasuries to fund the US deficit. That could be the jenga block supporting the whole structure. The real contrarian view (or tinfoil hat view, until it's not) is that the global trust in US paper as the safest of the safest assets might not be so unassailable. It might even be politics rather than macro economics that is its undoing.

    • ii

      ida i.

      25 1 2018 12:26

      1       0

      in the age of internet are there still contrarian views? that view is the zerohedge view which is not contrarian at all

    • DR

      Daniel R.

      25 1 2018 17:56

      1       0

      @ida - fair point. Maybe 'contrarian amongst those who actually move markets'. It wasn't even mentioned in this roundtable presentation, and when it is it's usually in the context of simply supply / demand for bonds. The mechanism is important though. The focus in this video was about inflation / deflation and what the Fed would do. But if other countries don't want to lend to US to fund the deficits then either the deficit has to decline (which is inflationary to the US) or US has to sell other assets to fund it (which gets political quickly). Inflation might be the tail, not the dog. Not saying it will happen, rather than you might want to watch the rhetoric of certain world leaders for the tell.

  • LA

    Linda A.

    25 1 2018 06:05

    6       1

    Wow, such great arguments- there is asset/commodities inflation, however the flattening yield curve indicates expectations for future inflation are falling. It also indicates anticipation of slower economic growth. The real estate market has started to deflate in terms of purchase price and rents. Recent news announced of pension funds selling billions in the equity mkts to lock in their gains & move it to bonds. Don't know what to make of this crazy mkt. distorted by central banks. Banks were on the brink of collapse for a few years and now they are trading at all time highs & providing dividend distributions. Seems like a dirty deal by central banks to prop up their troubled assets. The next crisis is going to hurt the 1% more than us "ordinary' people since they own 99% of assets.

  • T~

    Tshort63 ~.

    25 1 2018 05:35

    8       2

    Thanks to all the presenters. My head hurts in a good way trying to figure out where I lean. No wonder I enjoyed financial news before, I was being anesthetized before the slaughter and never had to worry about thinking.

    No matter which direction proves out, I will be more aware, having to think through to my own conclusion. Great job.

  • SD

    Stephen D.

    25 1 2018 05:23

    2       0

    I was a little frustrated nobody talked about TIPS. If we assume G7 Govt bonds are without credit risk then yield is just return on money over time + inflation. So TIPS would have helped illuminate whether these pundits believe return on money will remain low (this seems to be Raouls demographic argument) or whether inflation will remain low. Or both. Constantly lumping these two distinct parts with sole refernce to 'Yield' made the agument difficult to follow at times. Right now US 30 year is at 2.92% 30 year TIP is at 0.82% so that's very clear. Return on money 0.82%, inflation (CPI) 2.1%. If you think return on money will fall you buy the TIP not the 30 year UNLESS you have a strong view on low CPI as well.

    • DS

      David S.

      26 1 2018 00:08

      2       0

      TIPs use the CPI index to measure inflation. Consumers are really working hard to compare every possible price and buy at the lowest possible price. Many corporation will benefit from the tax changes, but consumer corporations will have margin compression caused by price resistance. The CPI and therefore the TIPs may not reflect all the inflation you expect. DLS

  • RI

    R I.

    25 1 2018 02:48

    5       5

    Goodness gracious, Raoul. It’s ok to admit you’re wrong about the dollar. Can’t win em all.

    • T~

      Tshort63 ~.

      25 1 2018 05:37

      1       2

      Sticking to your viewpoint is not the same as denying you're wrong. Pronouncing the USD direction complete is a bit like kissing a snake, preferably best done when the snake is certified dead. ;-)

    • EF

      Eric F.

      25 1 2018 05:51

      1       1

      Agree with T above. It’s a bit early to call and gracious is a word out of place in your comment.

    • RI

      R I.

      25 1 2018 16:47

      1       0

      I'm into facts, not feelings. The DXY is in a bear trend as it is down ~14% over the past 12 months and yields are clearly in a bullish trend. Not much to debate here. Some got it right and some got it wrong. In any case, we need people like you to continue calling for USD strength and lower yields, even when key technical levels (that Raoul and others clearly defined) are shattered. I appreciate you!

  • RG

    Robert G.

    25 1 2018 00:42

    0       0

    Looking for inflation? Available loads (freight) to available trucks is at the highest ever recorded levels. Rates have spiked in pockets upwards of 200%. Economic growth (high utilization) + Less efficiency for truckers (ELD Regulation) + Unattractive career equates to resetting of freight rates higher. Once Executives realize this is the new norm these costs will be past along.
    https://www.dat.com/industry-trends/trendlines/van/demand-and-capacity

  • LV

    Lisa V.

    25 1 2018 00:20

    8       1

    Michael Oliver is the one guy that knows what's going on. Everyone else has an intellectual argument of what they expect, he's the only one reading momentum charts.

    • EF

      Eric F.

      25 1 2018 05:49

      1       0

      Must admit I wasn’t part taken by MSA but the more I read the more I think he’s got a fantastic methodology.

  • TP

    Tom P.

    24 1 2018 23:55

    1       0

    can't wait for US yields to rise so that equity volatility can find a bid again

  • HJ

    Harry J.

    24 1 2018 22:24

    2       0

    Having been in the bond mkt for 40 yrs!
    I know enough to keep much dry powder. Its a shame the CB will pay the same song they’ve been playing.
    That seems to be the only sure thing.
    Maybe own it all

  • ii

    ida i.

    24 1 2018 20:05

    12       1

    I wish they had all been in the same room we could have had an excellent debate

    • GS

      Gordon S.

      26 1 2018 13:03

      0       0

      +1

      How advanced is RV's technology to maybe do this via the internet? Getting all these people into the same room at the same time is probably the most difficult part.

  • ii

    ida i.

    24 1 2018 19:51

    1       0

    I can't post a photo here but the Merrill Lynch 2y, 5y, 10y and 30y futures total return index is rolling over for the fist time in 30 years ... ticker MLT1US10

  • ii

    ida i.

    24 1 2018 19:44

    3       0

    I'd add this to the debate https://www.themacrotourist.com/posts/2018/01/24/swapspreads/

  • Jc

    Justin c.

    24 1 2018 19:38

    6       0

    Good video because reasons as opposed to just outcomes were presented.

  • JC

    John C.

    24 1 2018 19:13

    12       0

    I think I agree with Raoul that the debt supercycle combined with the aging population really will hamper any long-term inflation. Def could see energy prices feed into some inflation in the next few months as Julian was saying so yeah we could get to 3%, but will we? Similar scenario last year and it didn't happen.

    I'd note that from a pure trading TLT perspective that EFT has held up very well despite the rise in equities (although it's down a percent today as I type). So even with the rise above 2.65% it held in there.

    In the US at least the healthcare and housing price inflation is alarming and I kinda buy the asset price inflation in homes, equities and even crypto (!) so in a way I guess we might get stuck with overall deflation but inflation in the 'things you need to live' which is sort of a terrible outcome for most Americans. Ditto for education prices. So it might not show up in bond prices for various reason but make no mistake the average American consumer is under the kosh.

    This was awesome BTW really enjoyed the various outlooks. I like this format a lot.

    • LC

      Liliana C.

      24 1 2018 23:20

      4       0

      Right on regarding inflation in those areas that are truly alarming and are will be cause for revolt in the next downturn.

    • EF

      Eric F.

      25 1 2018 05:59

      1       0

      Agree also. Look at US health care cost projections, plus shrinking serving sizes. These costs are being hidden.

  • RA

    Robert A.

    24 1 2018 17:58

    2       0

    Timely with pithy and concise arguments in support of Positions taken by Position varying heavyweights. It just doen’t get any better....Vintage RV @ it’s very best!

  • NG

    Nicholas G.

    24 1 2018 16:44

    2       1

    This gold/bond ratio (see link: https://twitter.com/nglinsman/status/956120664678772736) is so close to telling you that inflation is going to be the trigger for higher yields. Over the last 35 years, it has been rare for gold to perform well during rising rates. In the long term, this is THE indicator – this is THE price action we should be watching.

    The last time gold performed as the inflation hedge was subsequent to Lyndon Johnson’s fiscal expansion arising from both the Great Society and the Vietnam War, even though the economy was doing fine and inflation was low. Look at the 1965 period in the chart below!!! This was the beginning of the period that ended with Volcker. And what do we have now!!! An end to austerity everywhere except perhaps China (even Germany there is likely to be some fiscal push). The conditions are almost identical.

  • DL

    Dan L.

    24 1 2018 16:29

    5       0

    From listening to everyone in this video, Michael Oliver seems to have the most conviction and understanding of the price action and momentum with Raoul probably being the best at hedging what Michael says. Jeffrey sounds like Ben Bernanke in 2006, "everything is fine." I don't think so, there are too many things that can go wrong over these next 2 years to be looking at the market that way. Michael's analogy of the woosh effect on Commodities sounds correct. The FAANGs may run the market hot a another quarter or two, but I believe there will be a big commodity push. The only question is, do you put the tilt on commodities pre or post correction?

    • JC

      John C.

      24 1 2018 19:16

      8       0

      Ok but Jeff is far from an 'everything is ok' kinda guy he thinks the whole system will eventually crater under the massive debtload and QE but also that there is no way for rates to really go up in the coming years too much as the CBs will do everything they can to fight it plus 3+% rates are unsustainable on the sovereign and consumer mortgage side of the equation. To boot, historically they haven't gone up like everyone thinks they will.

    • LC

      Liliana C.

      24 1 2018 23:59

      3       1

      Good question. I think inflation takes over the headlines, so the herd responds piling into commodities and selling of bonds accelerates. Then repricing occurs due to yields rising rapidly and crash ensues. Hence, buy commodities now is the trade. LT, Raoul, Jeff, and Alex and Julian are correct. Long end (30 yrs) got to zero. That will be the rotation trade. That's later though. Jeff is too logical in his argument and isn't taking into account what the herd will do.

  • dj

    daniel j.

    24 1 2018 15:26

    2       0

    Really Wonderfull. The best videos of RVTV is the analysis.

  • Nv

    Nick v.

    24 1 2018 14:17

    2       0

    It seems like many many people will have their heads ripped off clean this year. The recency bias is soooooooooooooo strong in the bond market.

    • JC

      John C.

      24 1 2018 19:18

      0       1

      Not sure..bond holdings are all all-time lows according to Raoul. If the bond market leads the downturn like it usually does yeah you could see 3.25%+ rates for awhile which kills the equity market after a few months then starts hitting the mortgage market. That could get ugly fast.

  • TS

    Timothy S.

    24 1 2018 13:42

    0       3

    Great insights from multiple angles. The Trump Dump is very close.

  • PU

    Peter U.

    24 1 2018 11:39

    7       0

    Wow! That was really good! I'll need some meds after that! Head is spinning!

  • TW

    Thomas W.

    24 1 2018 11:25

    15       0

    Great format to hear from various experts on a really big theme. What I think is lacking, however, is a fundamental macro perspective - economic leading indicators, central bank balance sheets, impact of legislation changes etc. and too much focus on historical patterns, charts, positioning and other "technical" factors. Both are equally important and should receive equal attention.
    Grain futures prices are bottoming out if you do not roll-adjust and price them in weakening dollars, to a Eurozone or Yuan buy-and-hold investor they would look horrendous. Oh, and do not buy VIX ETFs. If you think you got what it takes to catch a very consistently (and rapidly) falling knife, at least do it with futures and/or options.

  • TJ

    Terry J.

    24 1 2018 11:24

    35       0

    These half hour videos in which we get the concise insights of several respected analysts, representing both sides of the investment debate are simply the best! This is so timely, as there is no bigger conundrum in global markets currently than where long Treasury yields are headed, and whether the decades old secular bond bull is finally over. Thank you RVTV

    • SP

      Steve P.

      25 1 2018 04:58

      2       0

      But Terry - wouldn't an hour of that have been much more fruitful (and immensely interesting)??

    • OS

      Ollie S.

      25 1 2018 05:14

      1       0

      23 likes 0 unlikes = hotly debated? I have to say, I think this is the first RVTV video that I have to watch again to catch even a 1/2 the total info. I was actually wondering if I'd inadvertently clicked the 1.5x speed. The editor sure did....... and that's cool.

    • EF

      Eric F.

      25 1 2018 05:52

      3       0

      I think all that needed to be said was said and sub 30 mins makes it focused and punchy.