It’s easy to see how a sell-off in bonds might get out of hand, says Cris Sholto Heaton. Investors should take note.
It's easy to become confused about bonds – the term covers a wide range of financial products. Here, Ed Bowsher explains the main types of bond.
In this video, Ed takes a look at UK government bonds – how they work, why they are important, and whether you should invest in them.
MoneyWeek bond watch
Government bond yields around the world started climbing again in Autumn 2010. This showed investors getting more jittery about a toxic mix of soaring state borrowings and rising inflation, and so demanding bigger returns as compensation.
Global ten-year sovereign bond yields
America's ten-year bond yield is arguably the world's most important market indicator: it sets the cost of global long-term borrowing. As with other government bond yields, it falls (prices rise) when economic growth and inflation decline, because the fixed income stream paid by sovereign debt becomes more valuable. Quantitative easing (central bank bond-buying) has lowered yields further.
But in mid-2012, yields bottomed, except in Japan where they've since followed suit. Economic growth is now reappearing, while inflation and state debt concerns are still present. A global bear market in bonds now looks a real possibility, led by US Treasuries. That would make borrowing more expensive everywhere.
Eurozone ten-year sovereign bond yields
On the edge of the eurozone, rising default fears have been sending peripheral countries' sovereign debt yields soaring. The rough line in the sand so far is 7% - when yields breach that, it looks like the point of no return.
How will this play out? Watch this page to keep a close eye on those yields - they're a great early warning indicator of trouble ahead.
Spanish and Italian three-year sovereign bond yields
Here's the chart of Spanish and Italian three-year bonds. As investors' fears about these countries' finances grew, yields spiked up sharply.
Bonds: the MoneyWeek view
September 2014: Going against the grain QE has sent government bonds rising, and inflated prices of corporate bonds, especially junk bonds, by prompting investors to chase riskier assets. All bonds are wildly overvalued – they're only worth considering as a hedge against deflation within a diversified portfolio.
• See our view on all the major asset classes here.
Investors are bingeing emerging market debt. But this ‘irrational exuberance’ could result in a nasty hangover
Jitters over a Portuguese bank bring back memories of the worst of the eurozone crisis.
Stocks are risky and bonds are safe – or so the thinking goes. But as Merryn Somerset Webb explains, things are not nearly so simple.
Inflation is toxic for most bonds. But there is one type of bond that is immune. Phil Oakley explains how index-linked bonds work, and picks the best way to invest in them.
Asset allocation is at least as important as individual share selection. So where should you be putting your money? Here’s our monthly take on the major asset classes.
Inflation is finally happening in America, but the Federal Reserve can’t see it. That may mean raising interest rates earlier and further than expected, which could cause severe turbulence for stocks and bonds.
Corporate bonds that convert into shares at a certain price can be a great compromise for investors worried about risk. Analyst Maxime Perrin tips three.
The global economic recovery maybe picking up speed, but US government bond yields are still falling. Why?
A chain of Mexican restaurants is hoping to raise £1m by offering ‘burrito bonds’ on the equity crowdfunding platform Crowdcube. Ed Bowsher looks at whether it’s worth buying in.
Bonds look very expensive, but no one knows when the bubble might burst. Ed Bowsher looks at how you can get the diversification benefits of owning some bonds, without being wiped out if there’s a crash.
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