After it became clear that, despite post-GFC bank bailouts,
bonds were not going to fall - hitting new all time highs, in fact - the
debate among economists and market pundits switched to the theme of
‘inflation vs. deflation.’
The thinking: Bank balance sheets around the world were deteriorating
faster (deflation) than the central banks could print money (inflation)
resulting in a net deflationary trend that supported higher bond
prices.
The truth is: Central bank have been buying their own bonds - with
Japan being the most aggressive. And this insatiable trend of
debt-monetization by central banks is what has driven the bond bull. To
the point where nobody questions it anymore. Except Greenspan, suddenly.
