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I just came upon this interesting piece by Mohamed El-Erian
10 Things to Know About Negative Bond Yields - Bloomberg View
What I found particularly interesting were his points 9 and 10.
If he is correct about this, its seems to me that it calls into question the reliability of any model, like FIRECalc, that does assume the historical case of positive bond interest rates and, concomitantly, lower volatility. It may not turn out to be the case that bonds act as a portfolio stabilizer.
10 Things to Know About Negative Bond Yields - Bloomberg View
What I found particularly interesting were his points 9 and 10.
9. There are few analytical models, and even fewer historical examples, to help understand the broader economic, financial, political and social implications of all this -- particularly for a global financial system based on the assumption of positive nominal rates. We are truly in unchartered waters.
10. The ultra-low interest rate regime is likely to persist for now. In the medium-term, this historical and highly unusual phenomenon is likely to bring not just possible benefits for the European economy but also much higher risks of collateral damage and unintended consequences. Accentuated by the illusion of market liquidity, this is a world in which small adjustments in probabilities of future outcomes -- if and when they occur -- could result in sharp movements in asset prices.
If he is correct about this, its seems to me that it calls into question the reliability of any model, like FIRECalc, that does assume the historical case of positive bond interest rates and, concomitantly, lower volatility. It may not turn out to be the case that bonds act as a portfolio stabilizer.