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Bond Bubble Update: Cash Inflows to Bond Funds Set to Exceed Dotcom Bubble Record

|Includes: ProShares UltraShort 20+ Year Treasury ETF (TBT), TLT

 Perhaps a sign that we're heading into a deflationary spiral - perhaps a clear sign of a bond bubble - or perhaps some mixture of both.  From Bloomberg:

The amount of money flowing into bond funds is poised to exceed the cash that went into stock funds during the Internet bubble, stoking concern fixed-income markets are headed for a fall.

Investors poured $480.2 billion into mutual funds that focus on debt in the two years ending June, compared with the $496.9 billion received by equity funds from 1999 to 2000, according to data compiled by Bloomberg and the Washington-based Investment Company Institute.

The money flowing into bonds is “probably not repeatable on a consistent basis,” said Joel Levington, managing director of corporate credit in New York at Brookfield Investment Management Inc., which oversees $24 billion. “Eventually it won’t be sustainable. Whether that means five years from now or five weeks is a little difficult to tell,” he said.

How ironic that money is cranking into bond funds at a time when their fundamentals could not look much worse!  Long-term government debt looks like a ticking timebomb.  Muni bonds, meanwhile, are set to explode even sooner.  And I'd be real nervous that a lot of the outstanding corporate debt is going to go unpaid, too.

But, the market can stay irrational for a much longer time than anyone usually anticipates.  So we'll see if deflation fears continue to drive this "bond bubble" to unimaginable levels in the meantime!

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