Recently, a majority of bond investors accepted the belief that bond interest rates would stay low for a long time. As prices climbed higher, and yields lower, those bond investors on the sidelines had to buy to avoid being left behind. The bond market capitulated to the low interest rates forever thesis.

Rates fell from the 2.70% range to under 2.40% in a matter of days. The bond market is huge, so this took a lot of buying. Now that so many on the sidelines have bought in, near-term demand may be subdued. Since new bonds are issued regularly, this does not bode well for rates going forward.

Riverplace Capital believes that bonds are in a decade or longer bear market. It is likely to be a market where returns are low or even negative. Surely, this is a trend and there will be counter-trend moves periodically. However, the strong underlying trend will reassert itself, usually sooner than later. We use bonds only where we are required to so, and will keep this posture until rates climb to a level where we are getting a decent return for our investors.

We are comfortable in this minority view of interest rates.

The Lonely Bull