Hidden Bond Market Dangers Expose Traders to $2 Trillion Wipeout
Ultra-low bond yields and reduced liquidity could blindside investors and exacerbate losses once the market turns.
Steam rises above an American flag flying near the New York Stock Exchange.
Photographer: John Taggart/Bloomberg
Behind the rally in global debt markets lurks a disaster just waiting to happen. At least, that’s what some long-time market watchers are warning.
While dovish comments by the Federal Reserve and other central banks have prompted investors to pile back into bonds, two troubling developments could make buyers uniquely vulnerable to deep and painful losses, they say. One is the sheer amount of ultra-low yielding debt, which means investors have almost no buffer in the event prices drop. That’s compounded by the worry liquidity will suddenly evaporate in a selloff and leave holders stuck with losses on positions they can’t get out of quickly.