Jim Grant on Bond’s Bull Run

In a recent article for Barron’s, Grant’s Interest Rate Observer founder Jim Grant discusses the 35-year bull run of the bond market, noting that high interest rates at that time “beggared belief. Now it’s their plunge from those heights that makes you shake your head.” He quips, “If you have to forecast interest rates, do it in the shower where nobody can hear you.”

Grant provides an overview of the bond market’s trajectory over the last three decades, noting that anyone who might have accurately predicted its path would have “lost your job for talking gibberish. Not even the sell-side could stand to listen to you.” He offers insights on bond trends, noting that “in America, nominal yields have tended to rise and fall in multidecade intervals,” but emphasizing that “past performance guarantees nothing.”

“America needed 192 years to amass its first $1 trillion in gross public debt,” writes Grant, adding, “it hit the mark in 1981. Now there’s $22 trillion on the books, with another $1 trillion looming in this ostensibly prosperous fiscal year alone.”

In response to the 2008 financial crisis, Grant notes, “the doctors of economics pressed down interest rates and held them down. Cheap capital built leveraged, loss-making businesses. Private equity boomed. How will these bull-market creations fare in the face of higher rates, tighter credit, and cyclically stunted revenue growth? We are going to find out.”