Is the Corporate Bond Bubble About to Burst?

US Treasury yields are up, gilt yields have bounced and German Bunds yields have increased - so what happens if investors all rush from corporate to government bonds at once?

Danielle Levy 14 November, 2016 | 1:05PM
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Rising government bond yields have sparked fears that a bubble in corporate bonds could burst soon. US Treasury yields rose following the news of Republican Donald Trump’s surprise victory in the US election, as investors anticipated the potential inflationary effects of his plans for large-scale infrastructure projects.

If everyone heads for the exit at the same time, there is no way liquidity will be met

Over the past three months, gilt yields have increased by almost 60 basis points, while Bunds and Treasuries are up by over 20 basis points due to improving economic data. There is an inverse relationship between bond prices and yields, which means that if prices fall it causes yields to rise.

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About Author

Danielle Levy  is a freelance journalist specialising in investment writing for Morningstar.co.uk