How low can bond yields go?

[Ad Orientem]

My gut is telling me that the global bond market is deep into bubble territory. But the bubble could potentially stay inflated for a very long time as long as central banks keep printing money and depressing interest rates.

Discuss.

[pmward]

Well the Fed has been on record discussing negative interest rates a lot lately. They also changed their verbiage from "zero lower bound" to "effective lower bound". In other words, they can go much lower. The "effective lower bound" has been said to be about -10%. Interesting story in this, as it came from one of Pablo Escobar's ex-employees. He said that they found by burying large amounts of cash that approximately 10% would be lost to the elements or people stumbling upon it. So below -10% burying large amounts of cash becomes an arbitrage opportunity. Up until that point, nobody but small fry investors have any reason to pull their cash out of the system even at negative rates. When you bring bond convexity into the situation, it means the true bubble may not have even started yet. Of course, none of us knows what will happen. But there is possibility that bonds could have equity like returns in the coming years. I'm personally very confused on where we are going in the next decade. I've never been more unsure of what was going to happen. I'm very glad I'm in a portfolio right now that will be safe either way.

[drumminj]

Up until that point, nobody but small fry investors have any reason to pull their cash out of the system even at negative rates.

Unless you anticipate ending up there, and restrictions on getting your cash out. In that case, it would make sense to start going to FRNs in hand.