The Bond Market Bull Run died peacefully in his sleep at his home in PIMCO headquarters in Newport Beach, Calif., on Friday. He was 30 years old.
Bond Bull was born in July 1982 during a burst of inflation that sent interest rates above 15%. According to his father, former Federal Reserve Chairman Paul Volcker, Bond Bull lived the most prosperous life of any bond market in modern financial history, generating stock-like returns of 9.2% a year over his three decades on Earth.
Bond Bull had been in poor health for most of the last 10 years, stricken by the worst case of central-bank intervention doctors have ever seen, pushing his yield down to what was once seen as low levels. In 2008 he was diagnosed with stage IV public panic, which caused trillions of dollars to flow from equities into Bond Bull, pushing interest rates to the lowest levels in more than half a century. A blow-off top occurred last July, when interest rates on 10-year bonds fell to an all-time low of 1.4%, or about half the rate of inflation.
Until recently, doctors believed Bond Bull could survive another few years, kept alive by slow economic growth and investors still nervous about the stock market. But news of the S&P 500 hitting a five-year high and a rebounding housing market caused Bond Bull to take a turn for the worse in early January. On Thursday, Lipper reported that inflows into stock funds had reached the highest level in more than a decade. "I think this is it," Bond Bull whispered to loved ones. The next morning, the Commerce Department reported a surge in the construction of new homes, portending stronger economic growth. "My God," Bond Bull said. "It's over."
"There's nothing we could have done to save him," Bond Bull's doctor, Goldman Sachs managing director Hans Weber, said after his death. "Friends and family stood around his bed in disbelief, refusing to believe it was over. I mean, honestly, you guys -- he's dead. Bonds yield less than inflation. This is just arithmetic."
Weber addressed a packed news conference after Bond Bull's passing. "I know a lot of you are still holding out hope," he said. "Almost $30 billion flowed into bond funds in January alone. But I can't stress it enough: He is gone. The big returns, the low volatility -- all of that is over." Burt Michaels, a 64-year-old retiree from Tampa who holds all of his assets in 30-year bonds, told Weber he didn't know what he was talking about, noting that his portfolio had more than doubled in value over the last six years. "Exactly!" Weber snickered, muttering something about muppets.
In lieu of flowers, PIMCO requests an investment in any of its new equity funds.
The article Bond Market Bull Run: 1982-2013 originally appeared on Fool.com.
Morgan Housel doesn't own shares in any of the companies mentioned in this article. The Motley Fool recommends Goldman Sachs. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.