The good, The Bad, The Ugly: Bond Market compression suggests global correction

The global bond market compression story is a fascinating insight in to the global market. We discuss the latest with Bill Blain, Strategist for Mint Partners.

The Good We are seeing central banks moving in to macro alignment; globally, they are all starting to raise interest rates. They all see signs of growth. They are all beginning to anticipate that. Bill believes that we will see most of the world with higher rates next year. We are normalising and seeing the global economy expand.

Employment We are seeing employment constraints globally. We are seeing lots of firms struggling to hire. This shows the move from good to bad. Although we see full employment, we are not seeing wages rise. We have seen house prices outstrip wages. This shows a growing income inequality issue.

Are we moving to the inflationary mode? Looking at the yield curve, it is pressing. This would suggest inflation. We may be heading in to the next slowdown.

The Bad There is a wobble, people are asking whether or not we will be heading in to a recession next year. We are seeing a loss of momentum in the global stock market over the past couple of months. We have seen a slowdown in the Nikkei. Bill thinks that we will see a correction in the global stock markets, not a recession. They feel over valued. For more upside we need to see a dip.

The Ugly The bond decompression trade. We have seen Bond markets rallying so strongly since the global crash. The spreads between different risk classes however have massively compressed. Junk spreads are compressed to 200 basis points over treasury bonds! The safer end of the bond market however has widened significantly. Across the whole credit spectrum we are seeing concerns.

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