Nice read Dhruva but I would be skeptical of bonds as controlling the yield curve would be next to impossible due to the nature of the crisis. ( Opec+ hiking oil prices , Reduced inventories globally for oil along with sub optimal investments in renewable). These could keep inflation high making the bonds not so good as an investment unless the Central Bankers could ensure demand destruction.
Thanks Madhav, I think inflationary risks are now well known and priced in and as we have seen inflation goes up in cycles. one leg of cycle is over , central bankers are doing what they can do to destroy the demand.
When central bankers destroy demand corporates reports bad earning , inflation comes down and bonds do better than equity.
I would slightly defer on the demand destruction side as India has increased subsidies on fertilizer along with 6 month capping on natural gas as they are globally rising, spot is nearly 50% higher than the govt price. On the USA front they have forgiven student debt and has printed more money in the name of Inflation fund. On the bonds I would agree that they outperform the index but that has more to do with index constituents and it's weightage. From Nifty 50 in 70s to Tech heavy in 2000 and nit much weights were given to energy, metals and agriculture. Whereas commodities have outperformed during these periods, and even during the 1929 crash except 2008 when both the cycles merged. Hope this clears my point.
Hi Dhruva, it's a nice read.
Which platform do you use to invest in bond market?
I invest using zerodha kite
Hi Dhruva,
When buying bonds from platforms like Kite, how does the interest (say monthly interest) get credited to our account?
It gets credited to the bank account linked to ur dmat account, it's the same like you might have received dividends
Nice read Dhruva but I would be skeptical of bonds as controlling the yield curve would be next to impossible due to the nature of the crisis. ( Opec+ hiking oil prices , Reduced inventories globally for oil along with sub optimal investments in renewable). These could keep inflation high making the bonds not so good as an investment unless the Central Bankers could ensure demand destruction.
Thanks Madhav, I think inflationary risks are now well known and priced in and as we have seen inflation goes up in cycles. one leg of cycle is over , central bankers are doing what they can do to destroy the demand.
When central bankers destroy demand corporates reports bad earning , inflation comes down and bonds do better than equity.
I would slightly defer on the demand destruction side as India has increased subsidies on fertilizer along with 6 month capping on natural gas as they are globally rising, spot is nearly 50% higher than the govt price. On the USA front they have forgiven student debt and has printed more money in the name of Inflation fund. On the bonds I would agree that they outperform the index but that has more to do with index constituents and it's weightage. From Nifty 50 in 70s to Tech heavy in 2000 and nit much weights were given to energy, metals and agriculture. Whereas commodities have outperformed during these periods, and even during the 1929 crash except 2008 when both the cycles merged. Hope this clears my point.
excellent read,
so incase scenario 2 plays out :
I think we may end up seeing the next decade a lot like the 1940s.
would imply better to hold stocks than bonds over the next years ?
Inflation will go up Cyclically, so there will be good time to buy bonds and stocks.