Expert warns of bond collapse

(EPN) There is a bubble in the bond market, warns an International Finance, which predicts a rapid meltdown.

2010 may turn out to be a bloody year for bond investors.

It predicts Dan Deighan, top executive and founder of the American consultancy firm Deighan Financial Advisors, in a televised debate on television station CNBC.

"I think based on what happened in December that it is time to move out of bonds. The yield curve (for U.S. government bonds, ed.) Becomes steeper and steeper. There is a bubble in the bond market and the bubble will burst soon, "reads among other things from Dan Deighan.

With a steep yield curve believes Dan Deighan, the interest rate differential on short and long-standing government bonds is increasing.

22. December was the yield spread between 2 year olds and 10-year government bonds, according to Bloomberg News as the record 2.88 percent. Steep yield curves occur most frequently when there is expectation of significant increases in interest rates in the future.

Record oversupply

Besides the final steep yield curve is based, inter alia, he its prediction on the fact that the U.S. government faces having to sell a record amount of government bonds in 2010 to raise money to cover the enormous costs for various economic rescue packages and approaches.

Economists in the financial house Morgan Stanley has recently announced that they expect a comprehensive offering of newly issued government bonds in 2550 billion. U.S. dollars in 2010 - an increase of 700 billion. U.S. dollar compared to 2009.

Simultaneously, the U.S. National Fed by probability begin to raise its lending rate again by the artificially low current level of 0-0,25 percent.

Onslaught at the end

According to Dan Deighan, these factors will result in relatively soaring bond yields, which means that bond prices will fall.

And the meltdown in the bond market will occur at the moment that too many bond investors will exit the market at the same time.

"Many will come to true, if they fail to get out of the bonds in time, it is considerably harder to liquidate a bond portfolio than a stock portfolio," says Dan Deighan in television debate.

He points out that in connection with the great stock crash in late 2008 was moved huge amounts of money out of the stock market and into the bond market, which has caused the bubble. 

Believe in the bonds

However, there are players who still believe in the bond market.

David Schnautz, a pure strategist at the large German bank Commerzbank in Frankfurt, think the bond market will keep the skin on the nose in 2010.

"The big contract is a challenge and will continue to be the next year. But despite the offer and the prospects for an economic recovery continues, I expect that interest rates on U.S. government bonds will remain low, mainly because banks are likely to increase their holdings of safe and liquid securities , "he told Bloomberg.