Bond bubble: One huge bang or a series of mini-pops?

Cazenove Capital CIO Richard Jeffrey examines the scenarios with the greatest 'potential to sting' fixed income investors.

Have you ever watched a child blowing up a balloon? There is that initial huge effort necessary to turn the limp bag made of coloured rubber into a small globe. And then it seems to get easier with each successive puff. The balloon gets bigger and bigger, and the moment arrives when you know it is going to burst. But it does not, it becomes even more extended. You do, of course, warn the child that the balloon is at capacity, but your warning is lost in the excitement of this wondrous object getting larger and larger. And you know what the denouement is going to entail. A sudden bang ...