Bond bulls charge

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From Jonathon Shapiro at the AFR:

Don’t let the violent back-up in global bond rates fool you into believing the great three-decade long bull run in bonds is over, Australia’s top fixed-income managers have warned.

With China slowing and a global debt pile growing while a rising dollar slows the US economy, this is a world that simply cannot handle higher bond rates, they say.

“It wouldn’t surprise me to the see the Fed back right off [from raising interest rates],” Brett Lewthwaite, head of Macquarie’s fixed-income fund, told an audience at Morningstar’s investment conference in Sydney on Thursday.

“The whole argument is not ‘when they go?’ but ‘can they go?’. And if they go, can they go much? Quite possibly, you don’t see a hike.”

Don’t let melodramatic journalism fool you. The “violent back-up” in bonds is tiny in Australia:

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A little less than tiny in US bonds:

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Still tiny in Germany:

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The long end has sensibly sold off on some slightly better growth prospects and the oil rally.

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To my mind the Australian short end still looks cheap given it’s still pricing fantasy rate hikes (not saying it can’t get cheaper first). The long end is more hooked into international trends, especially the US where the odds still favour a Fed hike next year as the S&P bubble builds but only twice and any more will be be the end of the cycle!

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.