Few people have been more bullish on government bonds over the last 30 years than Gary Shilling. So love his advice or hate it, he seems to have a pretty good feel for the government bond markets. I thought this interview with Forbes was interesting (via Meb Faber). His macro view is always interesting, but it’s also interesting that he thinks junk bonds are a bubble. In addition, Shilling says the 10 year is going to 1%:
“I’m suggesting 2% on the long bond and 1% on the ten-year.
One of the great forecasters said, “You know, you either forecast what’s going to happen or when it’s going to happen, but not both.” I would say over the next year or so, and that’s assuming that this grand disconnect does get closed. If we go from 3% to 2% on the long bond that’s a total return, assuming it takes place over a year so you get a year’s worth of interest. That’s a total return of about 16% and it’s about 25% on a 30-year zero coupon bond. That’s pretty attractive, relative to what I think would happen in stocks, which would be on the negative side.
The ten-year, but you don’t get nearly as much bang per buck in the ten-year. The shorter duration, the shorter maturity makes a huge, huge difference. That’s why I’m one of those guys who still likes a 30-year bond, even though the ten-year is sort of the standard by which the whole world judges government debt.”
Read the full interview here.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.