Wednesday, September 8, 2010

Bond Bubble?

I purchased some quantities of SGS Bonds in early Feb this year. The YTD maturity is about 17 years and coupon rate 3.5%. My bid price is at 102.4

I check recently and the bid price is now at 111.93. I am pretty surprise at the run up of such a supposedly stable instrument in such a short time. The indicated yield now is only 2.6% for such a long term bond. Including the dividends, my gain from this is close to 10% this year, better than quite a couple of my stocks YTD performance in 2010.

Understand the yields of long term US Treasury Bill are also at quite depressed levels.

Do we have a bond bubble here where demand have suppressed yields to record low? Or is it a long term trend where investors prefer the security of fixed-income instruments to higher risk instruments after going through so much volatility in the last few years.

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