While some experts say bonds are headed for a tumble after their rally of recent months, UBS senior economic adviser Georg Magnus disagrees.
“Despite the deafening chorus of warnings about rising public debt and inflation, investors have little cause to fear either for the time being, or maybe for a considerable time,” he writes in a Financial Times opinion piece.
“In a deleveraging, low nominal world, most bonds won’t generate high returns, and default rates and refinancing problems will continue to rise,” he acknowledged.
“But the much-feared imminent collapse in bond prices is much exaggerated. Equities, on the other hand, could change from purple (strong), to red (weak) and back again, quite easily and frequently. Did someone say Japan?”
The economy’s sluggish recovery will buoy bond prices, Magnus says. Remember that a weak economy means low interest rates and that low interest rates mean high bond prices.
Unemployment, which now stands at 9.4 percent in the U.S, and the fall in personal income will both likely worsen in the next year, he says.
“Household consumption will remain depressed, as record household debt ratios are reduced, savings continue to be rebuilt, and many households cope with negative housing equity.”
While Magnus sees no collapse, many experts remain bearish on Treasuries.
"The Treasury market is going down because you are seeing a drive toward more risk. Stocks are bleeding away money from Treasuries," Keith Springer, president of Capital Financial Advisory Services, told Reuters.
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