In only the last ten days, the ridiculously high valuation of global bonds has once again come front and center on the world financial stage. Argentina has set a new record for absurdity by issuing the longest dated maturity bonds in at least the history of the modern era. These 100 year bonds will come due in the year 2117. They are payable in U.S. dollars by a country which has so far defaulted eight times since its independence in the last 200 years.
Despite this insane track record, investors lined up to buy $2.75 billion worth of them at record high prices and near record low interest rates. There are so many things wrong with this shockingly true story that it is difficult to know where to start really.
The smart money investors have just paid what will likely be the highest price these Argentinian sovereigns ever command, for bonds which are junk-rated and issued by a nation that has a terrifying history of defaulting on its bonds and other financial obligations and in a currency that has the dubious honor of being the one backed up by the greatest single debtor nation in the entire history of the planet.
For those of you who were wiser than the so-called smart money investors and chose not to buy the 100 year Argentinian debt, be warned that these are not the only bonds which today threaten the value and stability of your retirement portfolio.
The reason for this lies in the inherently inverse nature of the value of bonds versus the prevailing interest rates. In laymen’s terms, this simply means that as interest rates rise, the value of all bonds declines. If rates decline, the value of all bonds similarly rises. Look at this chart below to better visualize the idea:
The problem is that today interest rates are hovering at near all time lows. In some countries, interest rates are actually negative. Now the U.S. central bank the Federal Reserve has finally begun hiking those rates. Yet after three consecutive interest rate raises, they are still a good four plus percentage points below historically normal averages for rates in the modern fiscal era.
Inevitably interest rates will rise significantly higher from where they now stand. This is the ultimate truth for not only the United States, but also Britain, the European Union, and even Japan eventually. This sobering fact, which even the U.S. own Congressional Budget Office agrees on, means that the future direction and trend of all bond prices and values is down. The only question is whether it will be an orderly decline in values, or a rout in which they crash and burn.
Is Your Retirement Portfolio Protected by Gold Against the Massive Decline of Bond Prices?
The writing is on the wall for bonds of all kinds, be they high quality, junk, corporate, municipal, agency, or sovereign government bonds. As interest rates go higher, which they must, these bonds prices and values have only the one direction to go— way down. You should reduce your exposure to these issues at your earliest convenience, unless of course you are willing to hold them all the way to the maturity date and hope for the best.
Interest rates have never been at sub-zero before in the history of the world. For the Ancient Greek and Roman states, they hovered between four and 12 percent. The historically normal interest rate average in the modern post-Second World War period is over five percent. Gold will protect the assets in your retirement portfolio when the bond prices and markets inevitably collapse. Click here to receive your no-obligation, no-cost gold IRA rollover kit from industry-leaders Regal Assets. This way you will get all of the information you need to protect your retirement assets via a partial diversification of your IRA into physically held and tangible gold.