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How To Profit From The Bursting Bond Bubble

Mar. 09, 2018 2:23 AM ETTBF3 Comments
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By Nicholas Vardy

"Bond bear market confirmed today. 25-year long-term trendlines broken in 5yr and 10yr maturity Treasuries."

- Tweet by "Bond King" Bill Gross

January 9, 2018

Where were you on October 26, 1981?

That was the day the yield on the 30-year U.S. Treasury hit a record high of 15.2%. America was in its first year of the Reagan presidency... The first space shuttle had launched in April... And I had just taken my SATs after memorizing the definitions of 3,000 recondite (i.e., arcane, obscure) words.

While I had learned what words like "callipygian," "distaff" and even "recondite" meant, I had no idea what a bond market was. Much has changed since that fateful day.

The SAT no longer directly tests your vocabulary...The Dow Jones Industrial Average has risen from about 875 to just shy of 25,000...

And today, I'm writing about how yields on the 30-year U.S. Treasury bond tumbled from more than 15% in 1981 to a little more than 3% today (in what has turned out to be the second-longest bull market of the modern financial era).

Why the Bond Bubble Has Finally Burst

Calling the end of the historic bull market in bonds has been a mug's game.

"Bond King" Bill Gross - author of the tweet above - first called for the end of the bond bull market in 2010. He followed up with similar predictions in 2011, 2012, 2013 and 2014. However, much like the story of "The Boy Who Cried Wolf," financial markets have become immune to gloomy pronouncements.

Here's why I think this time just might be different...

The U.S. has been enjoying a "Goldilocks economy" - not too hot, not too cold. Inflation has remained low. The unemployment rate has dropped steadily from 10% in October 2009 to 4.1% today. And, after adjusting for inflation, the typical American family's net

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