Speculation, trading and investing in bonds

What is the most boring asset in the World Financial Markets?

It is probably bond trading. Although the well known American and German bond futures are the most traded contracts in the World.

However, I am not talking about professional trading but about the retail derivatives world, and in that world, bonds are not very appealing.

“Normal people” look for other things such as stock trading, warrants, Forex, financial and binary options.

Very rarely we will see the retail traders being interested in the bond markets although it is very common for the market makers of the World to include bond assets, especially in CFDs.

Investing in Bonds

The truth is that it seems very boring to invest in bonds, unless you are willing to risk yourself into banana republic bonds such as those of Venezuela, Argentina or even the well know PIGS like Greece. There is a lot of fun in bond trading in those cases.

What seems very boring is investing in Bunds or TNX.

Who wants to trade or invest there? Seemingly very boring assets with ridiculous returns and that rarely do big moves.

Everybody dreams of buying a stock that will rise 1000% in one year, or buying the EURUSD with a leverage of 100:1 and make a killing in two days.

The truth is that those with money in the World think otherwise.

Is it the reason the rich people have so much money?

Making the masses believe that day trading Forex and binary options is good for them while the rich guys buy the German, Swiss and American bonds?

Speculation and bonds

I always remember the books of Andre Kostolany and his interesting anecdotes.


One of the best was when he talked about one of his best trades ever, that was, curiously, in bonds. This is because bond speculation was one of his favourite ones, a speculation that sometimes, like in the cases of war, hyperinflation or distress offers great opportunities.

On that occasion Kostolany bought German bonds at francs 250, just when the Second War ended and Germany was completely ruined. Just imagine how Germany must have been after being invaded by the combined armies of the Soviet Union and the United States.

Nobody would give a dime for Germany in those circumstances, and even less considering that it was going to be occupied by foreign armies forever.

Well, years later Kostolany was able to sell those bonds for 35000 francs, in a spectacular trade.

He knew, somehow, that those German bonds were a steal simply when everyone else thought that Germany was dead.

Investing in State bonds

Similar situations we can find in countries that are in war or just ended it, or in hyperinflationary episodes.

In those circumstances, the bonds and stock market prices are at rock bottom.

People are so scared in those moments that nobody thinks of investing anything there.

They might be right in some situations that went out of control like those of Cuba, the Soviet Union or North Korea.

But in other situations it might be that those trades could be awesomely profitable.

Those moments are such a good opportunity because of the fact that there is no one willing to put money there; Money is scared.

Futures bond trading

As I said before, bonds are very famous in the world of futures where very well known traders like Paul Rotter, Gary Bielfeldt or Brian Gelber did very well; although some of those traders started as market makers, which is very different than the real thing.

One famous case was that of Gary Bielfeldt, who made a fortune trading the long side of the market for many years and lost most of it when the market was lateral for other years.

Long term investing in bonds

A bull market longer than that of stocks

Here is where the most boring part of this asset lays. Only people with money will normally buy these kinds of contracts.

Are they wrong?

Well, if we look closely to the biggest fund in the World, PIMCO, we will notice that they are experts in bonds for a long time.

After all, the American bonds bought 25, 20 and 15 years ago used to give 9 or 7% yield. Compare to the yields now.

People with money somehow knew there would be a bull market in bonds with decreasing yields and invested accordingly.

Those bonds are backed by the faith of the United States and Germany after all.

If those countries go bankrupt the stock market would be in total disarray.

How to invest in bonds?

It is very difficult to obtain great returns in the stock market consistently.

If you want a big profit in a short time it is more likely that you can find it in the stock market, especially if you can trade leveraged with CFDs, Forex, financial options or binary options.

However, the great investors in the stock market do not expect very big returns in average.

For example, Warren Buffett yields sort of 15% in average for decades.

The fact is that the bond markets are even bigger than those of the stock markets. And not only that, but besides they are more secure.

Actually the fact that the bond markets are the biggest in the World, especially the government bonds, is a sort of clue that could tell us that we are entering the final stages of the so-called Capitalism.

The long term bull market in bonds is the best way to explain the construction of the socialist ideal.

When there is more money in government bonds than anywhere else we should have the “red sign” and be ready for the final blast.

Someone that reminds us of the importance of the bond market is Antal Fekete, who knows very well the mechanisms that make the World economy move.

He keeps saying the “the real fun is in the bond market”, and not only for the coupons, but for the capital gains. Gains produced by the incessant, but unstoppable march to the bottomless pit of zero interest rates.

In those circumstances the speculators know what they have to do: buy bonds.

It is a sure bet since the FED and other central banks will not stop buying the bonds. The demand is there and is guaranteed 100%.

That is actually telling us what society is demanding.

Society is demanding more government funds for welfare policies and the State is providing them with as much “welfare” as they want no matter if the government bond bubble goes to infinity.

Although there is a limit to the bond bubble, and when it collapses there will be consequences.

When that happen the capital of the world will have been consumed.

Chaos will emerge and some solution will be presented.

This is what they call: order out of chaos.

The bond markets have been in a bull trend for 300 years.

The people think that this is going to be forever, but as Homer and Sylla remind us, everything has an end.

Some day the bull market in bonds will end.

That will be another story then.