Last year we discussed just how frothy the US fixed income valuations have become (here and here). Now in a matter of several weeks, the US bond markets have wiped out a year's worth of gains and then some. That includes all the interest income.
In fact, according to JPMorgan, May saw the worst global bond performance since early 2004.
All of a sudden the realization has set in that rates may in fact rise and the multi-year bond rally may at some point come to an end. Google Trends shows a spike in searches related to rates rising.
|Google search frequency for rates rising|
Not surprisingly bond fund and ETF outflows spiked, as investors began abandoning the beloved fixed income funds in droves.
|Source: ISI Group|
In the next post we will discuss the so-called "Great Rotation", which predicts that these outflows should end up in the equity markets.
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