Harvard Academic Sees Debt Rout Worse Than 1994 ‘Bond Massacre’
*Bond market is confronting the ‘perfect’ storm: Schmelzing
*Debt investors face a multi-year period of sustained losses
by Anchalee Worrachate
January 4, 2017, 10:39 AM EST
Bond market is confronting the ‘perfect’ storm: Schmelzing
Debt investors face a multi-year period of sustained losses
If you thought you had already read the gloomiest possible prognosis for bonds, wait until you read this one.
Paul Schmelzing, a PhD candidate at Harvard University and a visiting scholar at the Bank of England, said if the latest bond market bubble bursts, it will be worse than in 1994 when global government bonds suffered the biggest annual loss on record.
“Looking back over eight centuries of data, I find that the 2016 bull market was indeed one of the largest ever recorded,” wrote Schmelzing in an article posted on Bank Underground, which is a blog run by Bank of England staff. “History suggests this reversal will be driven by inflation fundamentals, and leave investors worse off than the 1994 ‘bond massacre’”.
Schmelzing, whose research focuses on the history of international financial systems, divided modern-day bond bear markets into three major types: inflation reversal of 1967-1971, the sharp reversal of 1994, and the value at risk shock in Japan in 2003.
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