Key Post A rough year

Discussion in 'Investments' started by Marc, 14 Dec 2018.

  1. joe sod

    joe sod Frequent Poster

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    what do you mean, did not the irish government sell more 10 year bonds with a puny 1.1% yield in the last week and it was way oversubscribed?, and irish bonds are hardly the safest out there with the very high irish sovereign debt yet they still got them away at such low yields.
     
  2. opexlong

    opexlong Registered User

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    Sorry joe I should've been more specific - I mean illiquidity and volatility in the high-yield bond market. No new issues for five and a half weeks until two days ago according to FT.

    The Nasdaq and Russell were in a bear market two weeks ago, so any sub-normal market activity ought to be setting off alarm bells. (Bear market rallies historically can last 2-3 months, so we don't really know if we are still in a bear market or not. We could easily be.)
    The mispricing of bonds helps to increase the very risks to financial stability which haven't been properly priced in (in a sort of reflexive cycle), in my opinion. We don't have a great track record with throwing caution to the wind in this country.
     
  3. joe sod

    joe sod Frequent Poster

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    so irish sovereign bonds should have a higher interest rate if the real risk was priced in. But is it not the case that many people are staying out of the stock markets but as a result their money is being invested in "low risk" funds invested mostly in bonds (but paradoxically their money will be invested in these very same "mispriced" irish sovereign bonds among others).
     
  4. Gordon Gekko

    Gordon Gekko Frequent Poster

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    My sense, for what it’s worth, is that the stability we’ve seen in bond markets (despite the scaling back of QE) suggests that things are better than one might infer from the weakness in equity markets.

    I’d certainly prefer to be long equities during 2019 rather than sitting in cash or short the market.
     
  5. RedOnion

    RedOnion Frequent Poster

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    Joe, out of interest, do you think that long term sovereign debt in general is mispriced, or do you think Irish debt specifically is mispriced relative to other bonds of similar duration as the risk is not properly priced?
     
  6. joe sod

    joe sod Frequent Poster

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    I dont know to be honest, I dont own any bonds. I just know that the quantitive easing program by the european central was specifically set up to buy european government bonds and create an artificial demand for them that was not there before. Therefore the interest rates reduced considerably compared to what they would have been without quantitive easing. I am amazed that everybody seems to think that quantitive easing caused a stock market bubble but the ECB did not buy stocks they bought government bonds especially the most risky european sovereign bonds.
     
  7. galway_blow_in

    galway_blow_in Frequent Poster

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    Often heard it said that the bond traders are the smartest guys in the room, was listening to an interview this morning on the Richard curran show with a former smurfit kappa high ranking executive who currently works for paddy Power ( didn't hear his name during segment I heard)

    Smurfit kappa went as low as a euro per share in 2009 but he claimed that the debt made investors even more money, same thing happened with those who bought Irish government debt circa late 2010
     
  8. joe sod

    joe sod Frequent Poster

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    but they were still taking on alot of risk, ireland was basically bankrupt in 2010, there was no guarantee those bond holders would be paid. What about the guys that bought icelandic sovereign bonds, they got burnt, that does not look too smart now and ireland was basically in the same place as iceland back then. I doubt the guys buying irish sovereign bonds today and only getting 1.1% yield are very smart, that looks pretty dumb in my book.
     
  9. galway_blow_in

    galway_blow_in Frequent Poster

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    Didn't say it wasn't risky but it certainly was rewarding, many would have offloaded what they originally bought when yields were 10%
     
  10. RedOnion

    RedOnion Frequent Poster

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    Is that not a bit of a strange comment from someone who couldn't answer my question yesterday about whether the interest rate risk was wrong, or the credit risk spread?

    So go on, what makes it dumb in your book?

    I'll make the question easier for you. Are the guys buying German 10 year debt with a yield of 0.2% also dumb?
     
    galway_blow_in likes this.