Bonds and Bubbles
Bonds have been in the news lately. The concern by the Wall Street talking heads, is that the bond market is in a bubble. What is a bubble?
- No it’s not a bubble, like we used to blow with our little bottles of soap and the rings that came with it.
- And no, it’s not a bubble, like we blow with our baseball card bubble gum, or the big red ball of gum, that keep the dentist in BMW’s.
- And no, its not the bubbles, that tickles our nose when we are drinking cheap champagne on New Year’s Eve.
Bubble Monster by audi_inspiration(C.C.)
This kind of bubble, is the kind that bursts when we invest our hard-earned dollar, or even worse, our borrowed dollar on the stock or bond market. Following the herd, the can’t miss recommendation of our brother-in-law.
Then POP, the bubble bursts, along with our dreams of making a killing!
Again-the bubble bursting is the noise we hear, when our investment crashes to the floor, or worse, the basement, or even worse to floors of hell!
Now that you understand bubbles, now lets discuss the bond’s that may or may not be floating, up, up, up-waiting on the guy with the needle, with a grin on his face, waiting for just the right moment-to bring it all crashing down.
Types of Bonds
I recently wrote, a very serious article, about how a company sells bonds to raise money to build a new factory.
Bonds, however, come in several types, with the post I linked to above discussing corporate bonds.
US Government Bonds
But the most common bonds sold, are US government bonds. These are sold at auction by the US government, to raise (borrow) money to pay for its bills. Otherwise known as the US debt. And as we have discussed in earlier posts, the US debt is growing at a record rapid pace.
Where does the bubble come in with bonds? Well, with all the turmoil recently with concerns about a double dip recession, and another world economic downturn-the professional investors are piling into the guaranteed return of the US government bonds.
Another reason, is the fear of the stock market-money has to be invested somewhere, and if not stocks, that leaves bonds for many investors.
The more investors bidding for the bonds, the lower the interest rate. The interest rate on US Bonds are at 30 plus year lows.
Why you, a nurse should care about Bonds:
But the bigger question you may have is, “Why should I, a nurse working a 12 hour shift care?” I am just working to feed the family, and helping others.
The reason you should care, is that the interest rate paid on these bonds, is reflected in, or has an impact on, just about every other part of the economy, and your money.
It affects:
- mortgage rates
- the success of your 401k or 403b, if any of your money is invested in bonds-and most of you have a portion of your money in bonds-whether you know it or not-if you invest in one of those retirement accounts at work.
- the rates you pay, when you borrow money for a car, truck, boat, etc.
- the rates you get paid in your savings or interest bearing checking account.
So the government bond interest rate yield has an affect on all of us. And bubbles are usually not a good thing, in any part of the financial world, because they are followed by a lot of pain, when the bubble bursts.
I will discuss and explain government bond investing further in another post. Whether you should buy bonds, or bond mutual funds, in your retirement accounts, 401-k or in your own investment accounts.
Reader Questions
What do you think? Are we in a bond bubble, does the interest rate you are paying or are being paid, matter to you right now?
What are your questions about the bond market, and all this government debt?
Millionaire Nurse Blog
