Tags: experts | bond | rally | over

James Grant, Other Experts: Just Say No to Bonds

Monday, 31 Dec 2012 07:42 AM

By Dan Weil

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Many investment luminaries have come to agree that the 30-year bond rally is over.

James Grant, editor of Grant’s Interest Rate Observer, is one of them. He has been negative on fixed income for a while.

He sees parallels between now and 1981, when a 35-year bear market for bonds was ending. One parallel is the view of the Federal Reserve.

Editor's Note: The IRS’ Worst Nightmare — How to Pay Zero Taxes

“Central banks are harmless, said the bond bears in 1981; in a social democracy, inflation is ineradicable,” Grant writes in the current issue of his newsletter. “Central bankers are harmless, charge the bond bulls of 2012; in an overleveraged economy, inflation is unachievable.”

Michael Gavin, head of U.S. asset allocation for Barclays, notes that an investor who stayed invested in U.S. or U.K. 10-year government bonds during the past three decades would have earned more than 5 percent a year over inflation.

“It does not require advanced market math to understand that returns like these are no longer remotely plausible,” he wrote in a commentary obtained by The New York Times.

One renowned analyst who doesn’t think bonds have peaked is independent economist Gary Shilling.

He expects a recession next year. "And that means you probably look for more appreciation in long-term Treasury bonds, which have been a favorite of mine since 1981," Shilling tells Yahoo.

He forecasts the 10-year Treasury yield will plunge to 1 percent, in 2013 from 1.72 percent Friday afternoon.

Editor's Note: The IRS’ Worst Nightmare — How to Pay Zero Taxes

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