Greed in the Bond Market | Wisdom, Wealth, and Wellness

Good morning, good afternoon, good evening. Depending on the part of the world you’re in. This is Jonathan Satovsky of Satovsky Asset Management and on today’s episode of “Seeking Wisdom, Wealth, and Wellness,” I want to talk about stocks and bonds.

Recently, we’ve had a sharp rise in interest rates and the 10-year Treasury bond has been teetering around 5%. And many investors, esteemed investors, think, “Well, if I can get 5 or 7% in bonds, why would I buy equities?”

Well, what’s interesting is there is an extreme amount of fear in the equity markets at the moment. Fear. Extreme fear. But because that narrative has taken hold with so many investors, sophisticated and wealthy investors, and very large institutions, they have been piling into areas of private credit and junk bonds because when you say bonds, you perceive it’s going to be safe.

_{Source: CNN Business}

Well, that means that at the moment the spread between junk bonds and high-quality bonds is extremely narrow, which implies extreme greed in the debt market—which is the antithesis of what’s happening in the equity markets. It’s fascinating—a very interesting occurrence.

_{Source: CNN Business}

But think about it logically. If basically there’s a problem and a business is defunct, there’s likely to be higher defaults or spreads widening. So, be educated about what is safe and what is not. Yeah, a three-month treasury at 5% is a safe investment. You may have risk to inflation and purchasing power over time, but you’re not going to see any volatility. But if you go out and buy other forms of debt, there is something called default risk.

Think about that on your path to Wisdom, Wealth, and Wellness. Have a great day.