There has been much talk of a bond bubble during the past few years.
In fact, in August 2010, an article by Jeremy Siegel, the noted finance professor at the University of Pennsylvania's Wharton School, was titled “The Great American Bond Bubble.” Paradoxically, the yield on the 10-year U.S. Treasury note — which was 2.8% at the time of the article — ended the first half of 2012 at 1.6%, a decline of 120 basis points in the ensuing two years.
The term “bubble” is used very loosely.
Researchers at the venerable Swiss Federal Institute of Technology concluded in May 2010 that “neither the academic nor professional literature provides a clear consensus for an operational definition of financial bubbles.” Bubbles are typically seen in hindsight and are associated with severe price declines. For example, the bursting of the tech bubble in the early 2000s saw the Nasdaq stock index lose almost 80% of its value during the next 2½ years. Following the collapse of the hugely frothy Japanese real estate market in the late 1980s-early 1990s, the Japanese stock market, which peaked at the end of 1989, declined by more than 60% in just more than 2½ years. More spectacular “bubble burstings” include the collapse in the price of silver in the early 1980s when, after having run up to almost $50 an ounce from less than $5 a few years earlier, the price of the metal plummeted by 90% in 2½ years.