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The potential bond crisis most people have never heard of

May 26, 2015

The potential bond crisis most people have never heard of

While 007 goes from strength to strength, his financial namesake may be heading for a fall

“The name’s Bond,” goes the famous line. But in this case, it’s not James Bond. While nearly everyone knows every detail about the 007 super spy, his lesser-known financial namesake is many times more important.

The James Bond franchise is expected to continue strongly with the autumn arrival of Daniel Craig speeding through the streets of Rome inSPECTRE, but those in the financial know worry about the spectre of the other kind of bond heading for a crash.

Four out of five bond traders worry the market could collapse in a disorderly sell-off.

And while Bond villains jump right out at you, bond villains are hard to finger.

At their most basic level, bonds are anything but complicated. They are simply a legal arrangement where one person agrees to lend money to someone else for a fixed length of time at a fixed rate of interest.

Popping the bond bubble

In the public imagination, if we think of them at all, bonds are the epitome of safety. Which is why it is strange to read in one of the world’s most reliable business publications, the London Financial Times, that experts are terrified of an imminent crash in bonds that could destabilize the global economy.

Canadian 30 year bond chart

The interest rates on Canadian bonds have been falling for decades, meaning existing bonds have risen in value. That could be about to change. (Pete Evans/CBC)

“This market could pop,” leading bond trader Brad Crombietold the FT. “There is more tension and anxiety over valuations than for a long while.”

 

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