#56: Ignore the Bond Market at Your Peril - Nicholas Bishop
Picture a Giant Anaconda, sitting in the corner of the room. Very still, observing everything - after a while you forget it is even there. One day its head moves an inch to the left. It is only a small movement, but it is enough to scare the shit out of everyone in the building.
This is how Nick Bishop describes the bond market.
Nick is the head of fixed income at Aberdeen Standard Investments. In this episode he pulls back the curtain on how the global bond market works and why it matters to you.
The bond market is worth $40 trillion in the United States alone, double that of the equity market. Around the world, governments use bonds to borrow money to spend and central bankers in a post-GFC world are using bonds to encourage spending and growth (it’s called quantitative easing, more on that in the episode).
Whether you are a seasoned professional or a humble observer, this episode is valuable - starting with the basics of what a bond is, Nick explains why they are a leading indicator of economic recessions (yield curves are important here) and why bond traders need to look decades ahead to stay at the peak of their game.
- Australian Office of Financial Management: https://aofm.gov.au/
- Bond Economics Blog (found this after the episode was recorded, quite interesting)
- Our series on the Australian Housing Market
- What is a bond? [4:09]
- How do governments use bonds? [5:31]
- How do governments sell bonds? [7:08]
- Governments defaulting [09:45]
- Relationship between price and yield (important) [12:05]
- Why we should care about the bond market [15:04]
- The Italian Government Bond hiccup and the EU [18:46]
- Taking advantage of the volatility [22:18]
- Dealing with the stress of volatility [23:30]
- Sell German, Buy Italian [24:29]
- Negative Yield Bonds and Quantitative Easing [25:50]
- Central banks coordinating [30:55]
- Unwinding QE [32:09]
- Bond Market Yield Curves [35:43]
- Inverted Yield Curves (important) [37:34]
- Softening ahead? [40:41]
- The Australian Housing Market [44:38]
- Nick’s experience during the GFC [47:45]
- Aberdeen still like Mortgage Backed Securities in Oz - [52:16]
- Long tail risks in the market [55:15]
- 100 year bonds [56:49]
- The bond landscape today, where do we sit? [1:02:31]
- How you and I observe the bond market [1:04:36]
- Volatility around President Trump and Brexit [1:07:54]