Contrarian: Bond investors should worry about debt forgiveness

Escaping the debt trap

I have just finished a mini roadshow around the country talking to high-end advisers. My own contribution was to remind them that markets are operating with a number of unspoken assumptions.

Not least of these is that QE could be around in various guises for decades to come, and the much expected bond rout may not happen as rates remain becalmed in a zero-bound environment. If I could encapsulate the collective angst experienced on my adventures around the country, it would be something like this: growth is still below trend, debt levels are still very high and deflation is clearly an issue. Various iterations of QE are likely to have a diminishing impact, except perhaps to keep bond yields low. This means each successive wave of QE has to be more vigorous, yet some debt lev...