Are the dangers of a bond bubble real?

Are the dangers of a bond bubble real?

Patrick Artus, chief economist at Natixis, asks whether there is a bubble in the bond markets and, if so, what this might mean for investors.

With interest rates on government bonds no longer pricing in the required risk premia, much market discussion has arisen over the presence of a bond bubble. This school of thought is reinforced by the presence of low short-term interest rates, abundant central bank money supply, and a correlated appearance of moral hazard in the financial markets. This has skewed investor behaviour towards risky assets, and led to a significant fall in risk premiums on bank and corporate bonds. High yield spreads are struggling to cover the default risk over the life of a bond, while public debt ratio...