If there was any doubt that we are in a bubble in Government debt, that was removed last week when Italy was able to sell a 50-year Bond on the assumption that the European Central Bank would soon add long bonds to its misguided buying spree.
Buyers of these bonds have no more faith than anyone else in the Italian or EU economy; but, are instead betting that they can sell these bonds back to the ECB for a profit. To make bets of that size on something that, on its face, looks to be a farcical investment would only done if someone in the ECB advised them of the ECB’s future bond repurchase schemes — “inside information” if you will at the expense of EU taxpayers.
All financial bubbles pop and this one in Government debt will be no different. While you can wait for the last dollar at its top (Ireland’s 100-year bond sale scheduled for March might be it), prudence would dictate that you get out while you can and move those funds to the only vehicle that can absorb the outflow of capital when it does pop — the US Stock Market.