Most investors are familiar with the term “bond”. According to many, the term derives from the motto of maritime brokers hundreds of years ago. It is the short version of the phrase “my word is my bond” or “meum pactum dictum” in Latin. Indeed, since 1801, a version of the Latin derivation has been the motto of the London Stock Exchange. A bond is a longer-term version of fixed income. The price of all fixed income is influenced by prevailing interest rates. It is a contract between a borrower and a lender, generally with some form of periodic income (the “coupon”), and a date by which the contract matures or is redeemed at an earlier date (“called”). In normal times, the rate is also partially determined by the quality of the borrower (“AAA rating”, etc.). The higher the rating, the lower the rate in general.
The world is experiencing a variety of bubbles such as currency, fixed income, stocks, real estate and art. Since currency and the various forms of fixed income are really the same “animal” with different coupons and maturities, there is no greater bubble than those two.
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