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Posts Tagged ‘bellwether bonds’

The End of a Move?

September 8th, 2025 by Kurt L. Smith

Sideways market movements can often seem perplexing. Just when you think interest rates should move one way, they meander the other; seemingly for months on end.

Welcome to the summer of 2025. Four months of longer-term U.S. Treasury yields ending little changed. The volatility of April saw interest rates plunge, then jump to even higher rates in May. Here we are at the end of unofficial summer after Labor Day with interest rates working their way back down to…normal?

This is how the bond markets act like a market. Several steps forward, one back. We have been here before: from the interest rate highs of October 2023 to a low in September 2024 I wrote often about the frustrations of a market in a correction.

The part of the bond market I care most about is the longer bonds. On this day before the monthly employment numbers are released (yes, by the Bureau of Labor Statistics), the thirty-year bellwether treasury trades at 4.88% (all prices and yields per Bloomberg). This yield is 94% of the 5.18% high back on October 23, 2023, and is much higher than 3.89% correction low on September 17, 2024. The trend for long term interest rates remains higher as I have said since March 2020 and the long end of the market is the place to see that most clearly.

Short-term interest rates, indicated by the six-month treasury bill, show a different picture. Today’s 3.96% yield sits on top of the spike low of 3.92% on April 7, 2025, during the height of April’s volatility and is down substantially from the 5.59% high of August 29, 2023. This summer’s plunge of yield on the six-month treasury bill puts the odds of a Federal Reserve rate cut of 25 basis points on September 17th at 95%, again per Bloomberg.

The Federal Reserve is a follower in my book, a follower of the six-month bill. Usually, employment data confirms the recent direction of interest rates so it would not surprise me if short term yields continued lower and the Federal Reserve comes through on September 17th with this first rate cut since December 18, 2024.

Unfortunately, it is those with cash in money market funds and other short-term instruments like treasury bills that have seen the effects of lower yields. These are generally not the moves you want to see as a holder of cash: a diminishing of your income.

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Municipal Performance Lags

August 4th, 2025 by Kurt L. Smith

What else is new? According to Bloomberg the municipal bond market is “logging its worst performance relative to US government debt since the start of the pandemic.” Municipals have lost 1% so far this year, trailing the 3% gain on US treasuries by about four percentage points.

Municipal bond pundits love to talk about supply and demand in the new issue market.  but over the long term, we believe that supply and demand should even out. As we have talked about for years, performance is determined not by owning the market, but by selecting your municipals with performance in mind.

We are in a bear market for bonds, and this means you have the wind in your face instead of at your back. Rising interest rates subtract from performance. Prior to the end of the bull market, falling interest rates gave a capital gain performance boost to portfolios. This trend change, in March 2020, makes performance figures in bonds look quite puny ever since.

For example, as of August 1, 2025, Vanguard Long-Term Tax-Exempt Fund Admiral Shares (VWLUX) reported total returns of -1.77%, +1.63%, and +0.18% for the one-, three-, and five-year periods, respectively (Source: Bloomberg).  You can pick your favorite municipal bond vehicle and it, unfortunately, will probably look fairly similar.

Similarity in the municipal market appears to be the rule in our four trillion-dollar market. Yes, managing assets is a matter of scale, as it appears most of the participants hold similar bonds. How else can I describe similar performance figures?

Owning the market has its advantages, particularly in a bull market. Owning seven stocks has its advantages as well, if they are THE seven stocks and the market continues as a bull. But owning the market in municipal bonds may not serve you as well as selecting your municipal bonds may serve you. Look at your statement over the past one-, three- and five-year periods or even longer.

In my opinion, the bear market for bonds is not complete. The asset gathering of Wall Street firms continues in municipals and watch any of their commercials; they are not selling the idea of buying in a bear market. Hard to fathom a bond market where our bellwether bond, the US Treasury 1.25% 5/15/2050 traded at over 100 in 2020 and consistently in the 50s or below for almost three years now, is worthwhile. Somebody, or something, owns that bond and hopefully it is not you. Have municipal bonds fared better than that bellwether? Perhaps, but who wants them; it is an indictment on owning long-term bonds in a bear market.

There are much better ways to keep your money safe and earn a worthwhile return at the same time. Individual municipal bonds are the key in a bond bear market. Individual bonds have maturity dates, unlike the mutual funds and exchange traded funds that are marketed however they are marketed. A maturity date is key; it was key to avoiding 5/15/2050 (then and now).

Since April 2025’s dramatic sell-off in bonds, interest rates have been trading in a range. How long this will continue, I do not know. But I do believe the trend is for higher interest rates despite seemingly everyone else continuing to invest in the municipal market, and its pathetic performance returns, hoping for better. The trend is not their friend, but it is ours.

Let me show you how The Select ApproachTM could work for you. For example, the Georgetown ISD bonds (below) is indicative of the general market. Look at those yields, below 3%, even before Friday’s rally (8/1/2025). We have options for short-term tax-exempt bonds; I suggest you consider them. We continue to find worthwhile bonds and I look forward to hearing from you.

Georgetown Independent School District, Texas

Unlimited Tax School Building and Refunding Bonds, Series 2025

Aa2 Moody Underlying AA Underlying S&P

Aaa Moody and AAA S&P on Permanent School Fund Guarantee

Due 2/15   Dated 8/26/25 Maturity 2/15/55

$334,005,000 Sold

Years   Maturity       Coupon        Yield*

1         2026             5.00%           2.52%

2         2027             5.00%           2.54%

3         2028             5.00%           2.57%

4         2029             5.00%           2.61%

5         2030             5.00%           2.75%

6         2031             5.00%           2.97%

7         2032             5.00%           3.10%

8         2033             5.00%          3.27%

9         2034             5.00%          3.38%

10       2035             5.00%          3.57%

11       2036**          5.50%          3.71%

12       2037**          5.50%          3.89%

13       2038**          5.50%          4.00%

14       2039**          5.00%          4.20%

15       2040**          5.00%          4.31%

16       2041**          5.00%          4.40%

17       2042**          5.00%          4.52%

18       2043**          5.00%          4.64%

19       2044**          5.00%          4.69%

20       2045**          5.00%          4.73%

21       2046**         5.25%          4.76%

22       2047**          5.25%          4.81%

23       2048**          5.25%          4.84%

24       2049**          5.25%          4.87%

25       2050**          5.25%          4.87%

30       2055**          5.25%          4.90%

*Yield to Worst (Call or Maturity) **Callable 2/15/35

Source: Bloomberg

This is an example of a new issue priced the week of 7/28/25. Provided for illustrative purposes only and is not a recommendation to buy or sell any specific investment.

Prices, yields and availability subject to change. Investment return and principal value of fixed income securities may fluctuate, and bond prices are subject to interest rate risk, credit risk, and liquidity risk.

Bonds Make A Splash

June 3rd, 2025 by Kurt L. Smith

For more than five years I have written the trend for long-term bond prices is down. Bonds have been in a bear market since the 2020 top in prices (low in yields). Our bellwether bond, the 1.25% of May 15, 2050, topped in price on August 6, 2020, just over 102 and on October 20, 2023, it hit its low of 43.25 (all prices and yields per Bloomberg).

How anyone could argue a case for owning long-term bonds is a mystery. We expected a correction of this steep decline, and the correction concluded at 56.185 on September 17, 2024, the day before the Federal Reserve first cut short term interest rates fifty basis points.

Since the Federal Reserve’s rate cut, long-term bond interest rates have soared and prices plunged, first to 46 on January 10, 2025, before correcting back up to 53 on April 3rd. This is when the US bond futures contract lost ten points in three days. Warning! Our bellwether fell back to 46 as a result but only able to recover to 49.

This past week the bellwether traded fractionally above 45 as it neared the 2023 low which I believe will eventually be taken out. At these prices the yield on this and other longest-term treasury bond is north of 5%. Will the yield hit 5.50%, 6%, or even 7%? Hard to say, but I can continue to say, and write, the trend for long-term bond prices remains down.

Cash is king. While investors may own a tremendous amount of cash, municipal bond investors almost exclusively own the market for municipal bonds. That is, municipal bond investors own long-term bonds which have performed poorly for them (close to break-even) over the past one-, three-, and five-year periods. The Bloomberg Municipal Bond Index has performed accordingly. Comparing performance to your municipal bond mutual fund of choice, or your favorite exchange traded fund ETF, and you will see similar poor results. When you compare it to your Select ApproachTM portfolio on your statement you will see a different, better reality. You do not own the market; your bonds are different.

Turning to short term yields, the Federal Reserve cut rates again on November 7th, 2024, and lastly on December 18th, 2024, for a total of 100 basis points. The six-month treasury bill was approximately 5.40% in June 2024, near its high. On December 18th the bill was about 4.30%, so the 100 basis points of Federal Reserve interest rate cuts were following the treasury bill yield. Last month, on April 7th, the treasury bill traded below 4% which might have indicated another 25-basis point cut, but last week the yield was 4.30%, the same level as December’s treasury bill interest rate.

At current treasury bill interest rates, there is little reason (or hope) for the Federal Reserve to cut interest rates. Six-month treasury bills ran from near 0% in 2020 to their 5.4% high in June of 2024. Was the move down below 4% merely a correction? If so, treasury bills could also climb to new highs in yield.

Certainly, treasury bill yields hold sway over the returns of cash in one’s portfolio. We do not control these rates, but what we can control is not owning the market of municipal bonds and the poor performance such ownership has delivered these past umpteen years.

Focus on what you can control. My approach, The Select ApproachTM, has performed for years. The warnings in the bond market are over as it appears to me the next leg of the bond bear market is currently unfolding. Will this be the leg that finally gets bond investors attention? Or even worse, will this be the leg that gets the stock market’s attention?

Fort Bend County, Texas

Senior Lien Toll Road Revenue Refunding, Series 2025

A2 Moody Underlying A+ Underlying Fitch AA S&P AGM

Due 3/1   Dated 6/15/25 Maturity 3/1/55

$261,345,000 Sold

Years   Maturity       Coupon        Yield*

1         2026             5.00%           3.07%

2         2027             5.00%           3.09%

3         2028             5.00%           3.09%

4         2029             5.00%           3.16%

5         2030             5.00%           3.20%

6         2031             5.00%           3.27%

7         2032             5.00%           3.35%

8         2033             5.00%          3.43%

9         2034             5.00%          3.55%

10       2035             5.00%          3.65%

11       2036**          5.00%          3.79%

12       2037**          5.00%          3.92%

13       2038**          5.00%          4.01%

14       2039**          5.00%          4.11%

15       2040**          5.00%          4.22%

16       2041**          5.00%          4.35%

17       2042**          5.00%          4.46%

18       2043**          5.00%          4.55%

19       2044**          5.00%          4.63%

20       2045**          5.00%          4.69%

21       2046**         5.00%          4.76%

22       2047**          5.00%          4.82%

25       2050**          5.25%          4.86%

30       2055**          5.25%          4.94%

*Yield to Worst (Call or Maturity) **Callable 3/1/35

Source: Bloomberg

This is an example of a new issue priced the week of 5/19/25

Prices, yields and availability subject to change

Bonds Reverse on News

October 28th, 2024 by Kurt L. Smith

The Federal Reserve’s September 18th rate cut was the news. This move followed excitement for the cut as three-month treasury bill yields moved from about 5.40% in July to 4.75% on the 18th. Six-month treasury bills moved from 5.30% to about 4.50% in the same time frame (all yields and prices per Bloomberg). The Fed merely followed the markets, as expected.

While the short-term interest rates have largely held in since the cut, longer term bonds have tanked. Sell on the news indeed! Our bellwether poster child, the US treasury bond 1.25% of May 15, 2050, sold at just over 56 on September 17th and below 50 today, October 25th. This is essentially the same level the bond traded at on October 24th, 2022.

It is difficult to make money in a bear market. The first step needed is to recognize that this is the trend. We reached this point years ago, back in 2020 when the bellwether sold at twice its current price, near par. Most investors have failed to recognize this first step. They have done what most investors have done: they held and/or doubled down. Unfortunately, with respect to bonds, they have not held bonds which have treated them well.

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Merely Gaining Steam

April 28th, 2022 by Kurt L. Smith

Last month I discussed whether the bond bear market had finished its first leg down or was it merely gaining steam. Over the past few weeks, we got an answer to that question.

I also discussed the importance of stocks moving to new highs or there is a risk for a larger correction. What is a larger correction? I believe we can place Netflix (NFLX – NASDAQ) as the new poster child for the definition of larger correction. At its recent price of $193.50 on April 27, 2022 (all prices and yields per Bloomberg), Netflix is down 72% from its all-time high of $700 set just five months earlier on November 11, 2021. Again, merely gaining steam.

The “What, me worry?” crowd continues to fiddle while Rome burns. The losses in bellwether US treasury notes and bonds over the past several months is unprecedented. The losses in the NASDAQ for April 2022 may be among the worst months ever. 3% mortgages are now 5% mortgages and inflation is, pick a number, 8%?

My get-out-of-bonds mantra for the past two years has now morphed into get-out-of stocks. Normalcy was exceeded months ago and is now moving toward extreme, yet capitulation evades us. Instead, we are looking at wave after wave of continued downward prices for financial assets.

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Worst Quarter Since 1973

March 30th, 2022 by Kurt L. Smith

Bloomberg published this line on March 22nd as their US Treasury Index had lost 5.55% since year end, surpassing the 5.45% loss at the beginning of 1980, the biggest quarterly decline since their index was created. In the middle of the bond bear market’s first move, this type of poor performance is to be expected.

Some people look at the bond market’s performance as the tortoise versus the stock market’s hare. Every day, bond investors look into the mirror (at bond performance) and it looks as if little has changed. Here, in the early stages of the bond bear market, nothing could be further from the truth.

The yields on the risk-free US treasury bellwethers we track have soared over the past two years. The 1.5% treasury note of February 15, 2030, sold at a .31% yield (111-19) on March 9, 2020 (all yields/prices per Bloomberg). This past week that note traded at 2.52% (92-23). This is an almost 19-point loss or 17% on the bellwether ten-year treasury note. Longer maturities fared far worse. Our bellwether is the 2.375% of November 15, 2049, and it sold at .70% or 140-17 on March 9, 2020. Last week this bond sold at 2.67% (94-09) for a 46-point loss or 33% of value.

Bond bear market? I do not recall reading that headline in the New York Times or splashed across magazine covers of late. But a dribble here and a dribble there while looking in the mirror has eroded significant values in the risk-free-rate US treasury market.

Almost all this price erosion happened before the Federal Reserve hiked interest rates. That did not happen until March 16th. So much for fed leadership; how’s that for Fed response?

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Now It Gets Interesting

February 17th, 2022 by Kurt L. Smith

Long-term investors, I mean old investors, have experienced market reversals. As night becomes day, market selloffs lead to new, higher prices. This law of nature does not apply to markets, though one’s experience tells one otherwise.

Over the last 40 years we have seen downdrafts leading to new highs. You remember the dates: 1987, 2000, 2007, and lately, 2020. What you may not be aware of is the same dates also saw similar action in bonds. The long-term bull market for stocks was mirrored by bonds. Bond and stock performance marched ever upward, together…until they did not.

I have worked hard to let you know the bull market in bonds is over. Yields traded at such a next-to-nothing interest rate in March 2020 resulting in record high bond prices. Compared to the double-digit yields of the early 1980s, which equated to record low bond prices, I believe the bond market has completed its long bull market journey. The bond bull market is over, and you should not own bond mutual funds.

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More of the Same

January 31st, 2022 by Kurt L. Smith

No, I did not delay writing this letter until we heard from the Federal Reserve on Wednesday afternoon. When was the last time the Fed surprised? Indeed, this Federal Reserve chair, Jerome Powell, is more of the same.

In the mold of the maestro, Alan Greenspan, Powell serves up optimism with the confidence that the Federal Reserve has “our tools and we will use them” to get the job done. Not only does he have the tools, but he also has experience using them. Whereas former Fed chair Bernanke questioned whether he had the authority to act and act boldly, Chair Powell suffers no such hesitation. He has already been there and done that.

Chair Powell has decisions to make. Inflation is the worst in 40 years, interest rates are rising without his involvement and the Federal Reserve balance sheet now stands at $9 trillion ($8.867TR, per Bloomberg). Thankfully everyone is working…everyone that hasn’t retired, quit, or been sidelined by COVID

This past month things are beginning to break down. Our beloved bond market, the one I continue to shoo you away from, continues to deteriorate. One should not own bond mutual funds which has been my stance for almost two years now. Benchmark yields such as the two-year US treasury note or the ten year note have risen substantially, yet Fed Chair Powell continues to wait.

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Streaks End

November 30th, 2021 by Kurt L. Smith

Streaks don’t last forever. This past weekend in college football proved that. The college football playoffs this year will not include Clemson, Ohio State or Oklahoma. Despite all reason, the best talent, and the fact we all love winners, the playoff runs for these schools has ended. Only Alabama’s hope remains. 

Time will tell whether this is but a minor setback for these perennial powerhouses or one of long-lasting stature. I know the differences. I am a (now) long suffering Texas Longhorn fan. 

I also called the end of the bond bull market as March 6, 2000. An almost forty-year winning streak for the bond market is now over, yet many do not share my certitude, even after twenty-one ridiculously long months. 

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Correction Over Reexamined

October 27th, 2021 by Kurt L. Smith

No, I am not referring to recent stock market activity, but hopefully I got your attention. Since July’s letter “Correction Over” bonds have performed poorly, as expected. While the bond market’s poor performance has yet to rub off on other markets, it would be a mistake to ignore what is unfolding.

Interest rates are rising and not just a little. I continue to watch the bellwether US Treasury bond, the 2.375% of November 15, 2049, which traded at 113 back in July when I wrote “Correction Over” (yields and prices per Bloomberg). This past week the bond traded at 105 for an 8-point loss over three months.

The ten-year US Treasury note, the 1 ½% February 15, 2030, traded at 103.75 (1.04%) in July and 99.25 (1.60%) last week for a 4.5-point loss. But it was the five-year US Treasury note, the .25% of August 31, 2025, which really moved from .63% in July to a doubling to 1.25% last week. Those five-year treasuries traded over 100 in September 2020 and last week traded at 97 (1.04%). Originally buyers of this short, five-year note, have seen twelve years of income in market value evaporate over the past fifteen months. Thank goodness the note will mature at par, though in 2025!

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