Economists, Noise-Traders and Journalists Happy Together

One of the large public Swedish pension funds, AP3, indicated last week that they had sold out their entire holdings of (Swedish) bonds, among those the inflation-protected. Considering the long-term nature of the funds' cash-flows, which the bonds probably to some extent matched, this must be seen as is a huge bet on an (faster than implied by the yield curve) increase in long-term interest rates. I've personally seen how such a bet have been made: the trader needs risk in his or her portfolio. He or she also need a good arguments behind that risk-taking, arguments that should point to in what direction the risk should be taken (black/red manque/pair). The (macro-) economist, who has been shouting for a long while about a bond-bubble and unsustainably low levels on bond yields in particular and interest-rates in general, is happy to eventually find someone who listens. If the bet fails, as it has before, they blame each other and others have to pay.

The most annoying part in the current story is that the journalists at Svenska Dagbladet (Swedish leading daily conservative) happily have refrained from doing their job, uncritically referring to the huge short-position on bonds by writing that AP3 has "reduced the risk in their interest-rate bearing portfolio". Technically true, but in its context a lie.

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