Perhaps a sign that we’re heading into a deflationary spiral – perhaps a clear sign of a bond bubble – or perhaps some mixture of both. From Bloomberg:
The amount of money flowing into bond funds is poised to exceed the cash that went into stock funds during the Internet bubble, stoking concern fixed-income markets are headed for a fall.
Investors poured $480.2 billion into mutual funds that focus on debt in the two years ending June, compared with the $496.9 billion received by equity funds from 1999 to 2000, according to data compiled by Bloomberg and the Washington-based Investment Company Institute.
The money flowing into bonds is “probably not repeatable on a consistent basis,” said Joel Levington, managing director of corporate credit in New York at Brookfield Investment Management Inc., which oversees $24 billion. “Eventually it won’t be sustainable. Whether that means five years from now or five weeks is a little difficult to tell,” he said.
How ironic that money is cranking into bond funds at a time when their fundamentals could not look much worse! Long-term government debt looks like a ticking timebomb. Muni bonds, meanwhile, are set to explode even sooner. And I’d be real nervous that a lot of the outstanding corporate debt is going to go unpaid, too.
But, the market can stay irrational for a much longer time than anyone usually anticipates. So we’ll see if deflation fears continue to drive this “bond bubble” to unimaginable levels in the meantime!
- Laurence Kotlikoff: America is $202 Trillion in the hole – and bankrupt
- Robert Prechter: You should run from “safe” Muni Bonds
- Why is everyone getting killed trying to short long-term interest rates?