Deutsche Bank Says Best Stock-Bond Run Since 1800s Under Threat

(Bloomberg) -- The best run for stocks and bonds over the past 160 years is ending as a new “age of disorder” looms, according to Deutsche Bank AG’s famous overview of markets spanning 200 years.

The rally that brought combined equity and debt prices across 15 developed markets this year to their highest level since at least the 1860s is buckling thanks to big shifts in the political economy, according to the bank’s research team.

The long-term market threats range from social inequality worsening to a reversal in globalization, strategist Jim Reid said in a report. He also cited higher debt levels, the climate debate and worsening U.S.-China relations as additional risks.

“While these themes have been around for some time, it is only recently that they have begun to feed off each other to hasten the demise of the second era of globalization that markets have been in since 1980,” Reid said.

Long-term market calls are notoriously hard to time. In 2016, Deutsche Bank warned bond investors that a new cycle was beginning that would undermine real returns. In fact, bonds have returned a real 26% since the start of that year, based on a benchmark U.S. Treasuries inflation-adjusted index. Euro-zone debt has returned less than half of that in the period.

While investors this week seem particularly spooked about high tech-stock valuations, the debate in the bond market has centered on the demise of real returns.

France, Italy and Japan in fact have failed to provide real returns for bonds on average in Deutsche Bank data dating back to 1900. That indicates that losing money on bonds, after inflation is accounted for, is a very real possibility for a long period of time even in developed countries.

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