5 Sep 2017
Bonds: Asset Bubbles
- Posted by Dejan Pekic BCom DipFP CFP GAICD, Senior Financial Planner
Last week we presented a chart to remind investors that booms and busts in financial markets are not new, they repeat with constant regularity but the path is always different which is why speculation is a recipe for failure.
Have a look at these Government Bond Yields.
You can go back to ancient Babylonian times and you will still not find negative interest rates before now.
These negative interest rates have pushed up bond prices to all time highs and the danger is that interest rates will mean revert (eventually). The impact for example of just a 1% rise in interest rates on a 30 year bond paying a 3% coupon would be a 20% drop in price.
As Warren Buffet has repeatedly stated, be fearful when everyone is greedy and greedy when everyone is fearful.
Now is not the time to be greedy.
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