Elliott Management's Paul Singer warns of biggest bond bubble

Paul Singer, founder of Elliott Management, has warned that markets were caught up in the 'biggest bond bubble' ever as yields on government debt hurtled towards sub zero.

Bond yields - a measure of the income offered by the fixed interest stocks trended in an inverse direction of prices. These had shot in response to the unprecedented quantitative easing by central banks since the 2008 financial crisis. The banks had been buying bonds to depress their yields and lower long-term interest rates, that were normally outside their control.

Additionally, investors such as pension funds had continued to pile pressure on government bonds, which despite their high price, were regarded as a safe haven amid stock market and economic uncertainty.

The demand for government bonds had been especially intense in Japan, Germany and Switzerland, where yields on 10-year debt were all in the negative territory.  Figures compiled by Tradeweb on behalf of Financial Times showed that there was a massive $13.4 trillion worth of debt trading on yields below zero.

Elliott, which is a $28-billion hedge fund founded in 1977 by Singer, is up more than 6 per cent for the year through July, cnbc.com reported.

According to the letter, in view of the persistence of low or negative yields on government and other bonds and the continued stampede to buy them nonetheless, today's environment marked "the biggest bond bubble in world history," and "the global bond market is broken."

The letter dwelt at some length on an investor mentality inclined towards an asset class regarded as a "safe haven" even when there were low or nonexistent returns associated with it and no guarantee that current conditions would persist.