This Time is Not Different. Yields are Too High
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In a previous article, My Elevator Pitch For Bonds, I asked, "Is this time different?"
My view of the attractiveness of bonds can be honed into an elevator pitch. It essentially boils down to a straightforward question – Is this time different?
Have the 40-year pre-pandemic economic trends reversed, and the economy's inner workings changed permanently over the last three years? expectations
More specifically, are slowing productivity growth, weakening demographics, and rising debt levels about to reverse their prior trends and become a tailwind for economic growth?
No, this time is not different.
Yesterday's economic headwinds have not vanished. They will eventually overcome the massive pandemic-related stimulus that continues to prop up the economy.
This article employs a classic model that solves for the expected economic growth as implied by bond yields. As you will see, the bond market believes economic growth will be significantly higher than expectations for the last 20 years. If it is correct and this time is different, current bond yields may be fair or even too low. But if this time is not different, the market is grossly offside in its growth expectations, and bond yields are too high.