Is there a Bond Bubble that is about to Burst?
We have been repeatedly asked over the course of the last several weeks if there is in fact a bond (or more specifically a U.S. Treasury bond) bubble that is about to burst. A valid argument can be made for the likelihood of a drop in U.S. Treasury bond prices in the near future due to the following factors:
However, looking at this question from an individual investor perspective, one should first consider the goals and objectives of an investor when purchasing bonds. Are they using bonds as a trading vehicle to try and achieve growth over the short-term or are they using bonds to achieve a predictable stream of income and principal protection when held to maturity? If the former is the case, this type of investor should likely consider reducing their allocations to bonds due to the aforementioned reasons. If the latter is the case, this type of investor should not be overly concerned as they will still receive the same streams of income that they are currently accustomed to and should still expect to have their principal returned to them when the bonds mature.
The author of this article is an employee of Hennion & Walsh, Inc., a brokerage firm specializing in tax free municipal bonds. The content of this post is not to be viewed as a recommendation.