"Hi David. Just some quick thoughts on your article from Tuesday on high yield bonds. I have been trading high yield bonds here in Europe pretty much from the beginning of the market in 1998 for various European and North American banks and I have been concerned about the market overheating for some time.

"Investors have completely forgotten that the sub investment grade corporate bond market should primarily be viewed as a total return market and not just a relative return one. Currently due to the suppression of rates in the West investors now seemingly view every fixed income security through the prism of near zero rates. Unless somebody has changed the bond math and not told me, then I fail to see how anybody will make money over the medium term in high yield. Total returns this year are in the region of 20% and no doubt less sophisticated investors are about to make the classic mistake of driving their investment decisions while looking in the rear view mirror. High yield corporate bonds are called junk in the downturns for a reason. I fear a whole new investor base is going to learn the same painful lessons of many before them.

David Fuller's view Many thanks for an important email generously provided. You understand better than most what is going on in the bond markets. Arguably, they were already in a bubble environment several years ago and the QE from central banks has been massive since 2008.

Ironically, if central banks are 'successful', meaning that they prevent a sharper and deeper economic setback, albeit at the cost of future inflationary problems and slower GDP growth, then the inevitable bursting of the bond market bubbles will create havoc for many of today's participants. This will also have other unpleasant consequences, although we can only guess as to the extent of these because the current situation is largely unprecedented. We will need to be very careful when the bond market bubble bursts because there will be some collateral damage which may not be entirely rational as people panic.

As for monitoring the current bond market bubble, I would keep a close eye on the futures, including US 30Yr and US 10Yr, plus other markets in a similar position. I would also look at the total return graphs, including Merril Lynch 10Yr+ US Treasury Total Return, along with anything else that you find useful.

Bubble markets often move well beyond what the most knowledgeable and experienced, value oriented participants in the sector expect. We need to remember this because bubbles are an increasingly risky but very profitable opportunity up until the time they burst. This does not mean that we should leverage up like the 'holy fools' who will look like fearless heroes before the bubble bursts. However, people who specialise in the sector may wish to maintain some position in line with the trend while the chart action remains favourable. They can stand aside and / or reverse as it starts to unravel.