We've heard it all before. The end of the bull market for bonds has been called so many times over the last 35 years that nobody is paying attention.
The list of casualties of those that have bet against the bond market is long. Even star investor Hamish Douglass was forced to concede this week he was unwise to call time on the three-decade-long descent of long-term interest rates.
Now it seems almost everyone has capitulated and embraced the "lower for longer" trade. And If bond rates can break through zero, what on earth can stop them?
But maybe, just maybe, this time is different. One of Australia's most experienced bond market investors, Roger Bridges of Nikko Asset Management, told clients this may just be it.
His thesis is that the most recent leg of the bond market rally has been fuelled by a surge in Japanese and German bonds, as the European Central Bank and Bank of Japan has embarked on ever more aggressive quantitative easing to stimulate inflation.
But it's not working and if anything may be doing more harm than good. Once these central banks realise that monetary policy has reached its limits, the rally will fade as the bond purchases are dialled back.
Bridges says he came to this conclusion this year when the big "bazooka" announcements made by the central banks weren't sustained in markets.
"I personally think anything below zero means we have run out of reasons to buy them," he says.
"But there's a realisation that QE is not working and there has been a lot of push back. So the ability of central banks to increase or extend QE may not be there anymore."
Low rates starting to hit home
Part of the rationale behind QE, which few openly admit, is to force down the currency. But that too is losing its effectiveness of late with the Yen appreciating and the Euro holding firm despite more bond purchases from the BOJ and ECB.
And low rates are starting to pinch. Savers are losing out while pension funds and life insurers are struggling to meet their liabilities without investing in ever riskier assets.
One area of increased debate in macro circles is the relationship between the health and profitability of banks and central bank policy. As interest rates have fallen to low and even sub-zero levels, bank share prices have suffered as investors have doubted the durability of their business models to sustained low interest rates.
Negative interest rates increases the cost of banks holding deposits while a "flat yield curve" where long-term rates are low relative to short-term rates, also hurts banks who are in the business of borrowing in the short term and lending in the long term.
Interestingly, Japanese bank stocks have surged since July 29, when Bank of Japan governor Haruhiko Kuroda disappointed markets by not cranking up the stimulus efforts.
The prospect of less negative short-term interest rates and potentially positive long-term interest rates was welcomed by bank investors who have suffered from the cost of low-interest rates.
The July release also showed that the Bank of Japan was focusing on measures to assist the banks in reducing the costs of hedging their currency exposures.
This all points to what may be seen as a growing realisation that monetary policy works better when its helping, not hurting, the banks who extend credit into the economy.
And higher, not lower, rates will help this cause.
Also with the effectiveness of monetary policy on the wane, the call for governments to step up and spend is growing louder.
That's all bearish for bonds, Bridges says. But before you bet against them, be mindful of all who have tried and failed to take the other side of the bond market.
