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Richard Cookson

The Bullish Cases for Bonds Are All Premature

Fixed-income assets don’t always do well in a recession, especially when inflation caused the downturn.

The bond market is looking more and more like a trap. 

The bond market is looking more and more like a trap. 

Photographer: Express/Hulton Archive/Getty Images

There was a time, some 12 years ago, when I bowed to no one in my enthusiasm for bonds. Longer-dated government debt yields had surged after the global financial crisis. Yet for various reasons, inflation was likely to remain subdued, I argued. US Treasuries and even German bunds yielded about 3.5% at the time. Although headline inflation waxed and waned, it consistently came in below forecasts for the next 10 years. 

For the past 18 months I have warned that inflation would surprise to the upside and investors should sell bonds in the US and Europe, which were, by any yardstick, insanely expensive. I also said rising bond yields would negatively impact most other financial assets. With yields having risen as anticipated, there is now a swelling chorus arguing that bonds are a buy. They’re wrong. Although yields on shorter-dated bonds might find some support for now, those on longer-dated bonds have much further to rise.