In a bleak new letter to investors, Paul Singer's Elliott Management warns that the bond market is "broken" and that when the central bank actions of recent years no longer ward off a market downturn, the subsequent loss of confidence could be severe.
The fund's recent investor letter, which covers the second quarter, notes that Elliott's managers are currently seeing "what is in many ways the most peculiar period we have faced in 39 years."
Too much power has been ceded to central banks, the letter adds, the value of money has been debased, inflation is probably inevitable, and when it happens, it could be swift and impossible to tamp down.
Elliott is a $28 billion fund founded in 1977 by Singer, now its president. The fund is up more than 6 percent for the year through July, according to an investor. (Singer is scheduled to deliver a keynote address at the Delivering Alpha Investor Summit, Sept. 13.)
Given the persistence of low or negative yields on government and other bonds and the continued stampede to buy them nonetheless, today's environment marks "the biggest bond bubble in world history," and "the global bond market is broken," the investor letter states.
The letter discusses, at some length, the oddity of an investor mentality that flies to an asset class regarded as a "safe haven" even when there are low or nonexistent returns attached to it and no guarantee that current conditions will persist.