Displaying items by tag: Treasuries

Monday, 16 September 2019 13:47

The Bottom May Be Falling Out of Bonds

(New York)

Treasury bonds and their associated funds just had one of the worst periods on record. Specifically, they had their worst week since Trump was elected. The iShares 20+ Year Treasury Bond ETF fell 6.2% in a week, the sharpest drop since bond markets panicked on Trump’s surprise election. What is odd about the big drop is that the stock market remained relatively muted throughout. Usually, big losses in Treasuries come when there is a big risk-on rally in stock markets.


FINSUM: There has been a huge rally in bonds, and in the last week, a lot of the pessimism has faded from markets as economic data is relatively stable and trade war fears are ebbing. Accordingly, this could be the start of a real rout.

Published in Bonds: Treasuries
Friday, 23 August 2019 13:40

Huge Losses are Coming for Bonds

(New York)

Negative bond yields dominate the globe, and US yields are headed inexorably lower. The bond rally that has unfolded year is hard to over-state, with the 30-year Treasury at an all-time low. However, all those gains look likely to reverse sharply, as signs are on the horizon that US inflation is about to jump. The trend in CPI looks likely to show a bump after a series of lower annual highs. The movement is exactly the same as the one that preceded gold’s big jump this year. According to the data, CPI looks likely to rise to 2.5%, which would virtually eliminate the possibility for negative yields on the 30-year bond.


FINSUM: While calling higher inflation is a dangerous game in the post-Crisis world, the general analysis here is reflective of the fact that yields are way too low for how healthy the economy looks in data.

Published in Bonds: Treasuries
Friday, 16 August 2019 12:24

This Market Can Only End in Tears

(New York)

Bloomberg has published a very insightful article about the current state of the market. In particular, it offers a view of how the big run up in bonds is likely to end. The fears that are driving the bond market—mostly that de-globalization will cause a recession—can only end two ways. Either the recession and de-globalization never materialize, in which case yields shoot back up, causing big losses in bonds. Or, the breakdown of global trade does happen, In this scenario, goods likely become significantly more expensive (especially in west) because there is no more labor and cost arbitrage. In this scenario, inflation then jumps, again sending yields much higher and sparking losses. In other words, the current bond market can only end in tears.


FINSUM: This was a very insightful argument in Bloomberg today. While there are some nuances that might cause some different outcomes, the basic contention is quite astute. Stocks seems a much better bet.

Published in Bonds: Total Market
Thursday, 15 August 2019 11:44

We Need to Reset All Our Yield Expectations

(New York)

Yields are really low, right? No! In fact, they are high. That is how investors may need to start thinking about yields. Everything we thought we knew from the last 50 years might be worthless now. The CIO of Northern Trust explains “I continue to be surprised by my fellow asset management professionals who think that the long-term norm for the 10-year U.S. Treasury should be closer to 4% or even 4.5% … This is just too high when you consider among other facts that there is $15 trillion invested the bond markets globally right now that is carrying a negative interest rate”. He continued “On the day of this discussion the Swiss 10-year is at negative 90 basis points, the German 10-year is trading at negative 56 basis points, and the Japanese 10-year is at minus 20 basis points … So, why would the U.S. 10-year trading at close to 1.5% or 1.75% seem low? It’s in fact unusually high in the global context”.


FINSUM: Maybe super “low” yields are the new normal, and we should think of the US’ yield level as abnormally high right now. It is hard to stomach and has enormous implications, but it may very well be the truth.

Published in Bonds: Treasuries
Monday, 12 August 2019 12:28

US Yields Will Go Negative says Pimco

(New York)

The US’ leading bond manager has just made a bold call. Pimco thinks that US bond yields will follow Europe and go negative. Speaking about the market situation more broadly, Pimco says “The next several years could be the exact opposite of what we saw in the past five to 10 years … That was high returns on financial assets and low volatility. That will be turned upside down”. Pimco is particularly concerned about a recession, believing it would send yields sharply lower. However, that is no sure bet, because if the trade war gets sorted out sooner than expected, yields would likely move higher quickly.


FINSUM: Yields moving lower seems to be the path of least resistance, so we think that is the direction that bonds will trend.

Published in Bonds: Treasuries
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