The bond market is in a bubble, equities have become a derivative of bonds, and the market’s recent gains are built on very shaky foundations, that’s according to Astellon Capital Partners’ latest market environment update presentation.

Event-driven hedge fund Astellon Capital was founded by Vogel-Claussen and Bernd Ondruch in 2011 and fund invests across multiple asset classes including equities, fixed income, convertibles and hybrid products to achieve the best returns for its investors.

Over the past few months, the fund managers have become increasingly concerned about the market environment. Chief amongst these concerns is the rising correlation between bonds and stocks to the stage where equities have now become a derivative of bonds. These concerns are detailed in the fund’s most recent presentation. Here are the highlights.

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Astellon Capital: Waiting For The Bubble To Burst

Central bank QE has achieved its primary objective of driving up asset prices.


Central bank assets outside of the US have continued to increase this year and are up $2.2 trillion year-on-year.

Astellon Capital  bubble-2

Astellon Capital

The side-effect of central bank policies are becoming even more apparent as crowding takes hold.


As the dominant forces in the market, central banks have now become the de-facto price setters.


As QE has gained traction and become a driving force for markets, the correlation of equity markets and government bonds has exploded. Equities have now become a derivative of bonds.


Low vol & long duration stocks are driven by yields and are now the driving force behind the market.


Case study, ‘Swiss cyclical growth stocks’ trade as bond proxies.


Most long-term bonds now trade at such low levels they will produce a loss for investors over the lifetime of the bond.


There is no alternative (TINA) is a myth. Everything can look cheap when compared to a more expensive asset.


Positioning remains extreme even after the recent rotation from bonds to equity ETFs.


And finally, there are tell-tale signs that the equity market rally is rapidly running out of steam.

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