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Posts Tagged ‘bellwether bonds’

Be Prepared

February 24th, 2021 by Kurt L. Smith

The past week has been a tragedy down here in Texas. One crisis morphed into another leaving dozens dead and tens of billions in destruction. Simply terrible and preventable.

As a Texas native, ridiculously cold weather for a ridiculously long (for us) time is not a once in a century experience. Every decade or so it happens. But Texans are not all native Texans now (or ever). Texas has been growing by transplants forever and their expectations eventually collide with a horrible reality.

A gardener prepares his garden in the winter. A homeowner prepares her pipes before they freeze. An investor prepares for the downturn as the market moves higher. There is time for celebration but there is also time for work, the preparation what comes next.

Last month we focused on the ten-year Treasury note and long bond. Friday, February 19th, those sold at new low prices (high yields). The long Treasury bonds has now lost 35 points in value from March 9, 2020 at 140.17+ to 105.05+ Friday (all prices from Bloomberg). One of the recently sold ten-year Treasury notes, the .625% of August 15, 2030, has now lost more in price that it ever promised to pay investors in interest over its ten-year life, trading at 93.6875.

These treasuries are, of course, the favorite investment for the Federal Reserve Bank. Their appetite for all treasury securities has grown on their balance sheet from about $2.5 trillion a year ago to $4.8 trillion now (per Bloomberg). All the while, their price continues to fall.

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Stocks Are Down Ten Percent, Now What?

October 31st, 2018 by Kurt L. Smith

This past week the S&P 500 traded ten percent below its all-time high set just a few weeks earlier on September 21st. This letter also marks the one year anniversary of my letter entitled Top of Tops. Why wait until year-end to write the year in review when an anniversary will do.

Last November we were well into the Bond Bear Market that began in 2012, yet few talked about it or even noticed. We have been keeping score using the US Treasury ten year note which hit 2.01% on September 8th, 2017, 2.47% a few weeks later on October 27th and traded October 9, 2018 at 3.26%. Indeed bond yields are running higher, sending longer-term bond prices ever lower.

The bellwether thirty year US Treasury bond posted a low of 2.63% September 8th, 2017 and recently traded at 3.44% on October 9, 2018. A year later we have seen significantly more analysts, pundits and investors join the bond market bear camp but as I said last month, interest rates are rising so slowly (so far)  as to only minimally affect overall fixed income investment returns. (more…)

Top of Tops

November 6th, 2017 by Kurt L. Smith

Relish in all of the good news? Certainly you must be joking? All-time highs for stocks and bond yields seemingly at low-forever yields (meaning high forever prices) and I want to rain on this parade? In a word, just one word, yes!

The reason why I have been keeping you apprised of the albeit slow changes in the bond market is because the trend change is beyond important: it is generational. Who knew that the next and most impactful move in the bond market would also occur at the all-time high for stock prices?

We have been keeping score vis-à-vis the ten year US Treasury note. Indeed the note did hit a low of 2.01% on September 8th and yields hit 2.47% on October 27th. Not the radical change I had predicted last month, but not bad and moving in the right direction.

I am focused on bonds and the bond market as reflected by yields on the ten year treasury. We can also look at the bellwether thirty year which should be at a low here at 2.85% up from 2.63% on September 8th. These low yields certainly fit the narrative of low yields. They will not remain low for much longer; certainly not forever. (more…)

Slow Moving Bond Bear To Quicken

October 16th, 2017 by Kurt L. Smith

The trend is indeed your friend and the only friend one has needed these past few years has been the one in stocks. Despite the fact that municipal bonds were the best performing asset class in 2014 (yeah, that long ago), stocks are where the action is. Enjoy it, because trends change.

When it comes to bonds, only two words are needed: low rates. Forget trend change; forget even a price or yield change. When it comes to bonds, low rates is all you need to know. Spoken by stock market pundits, why would anyone be concerned about bonds? Stocks are where the action is.

Rates are indeed low, but they have been lower. The reason we care is because the trend is your friend and when it comes to bonds, the trend has changed. You know it because I keep telling you. Sure it’s a lonely proposition, but the market continues, albeit v-e-r-y slowly, that I am indeed correct.

In June, I believed a 2.13% low on the ten year treasury completed the bond market’s correction of the 1.32% to 2.64% initial move up. Yep, I tried to hurry the market. In September the market hit 2.02%. But last week we were back to 2.40%. I like my proposition!

At rates of 2-this or 2-that, every stock investor will continue to claim the low rate mantra. But after a 1,000 or 5,000 point decline in the Dow, the perspectives will change. The story will change. (more…)

Rates Rise; Who Cares?

March 8th, 2017 by Kurt L. Smith

These are heady times in the stock market. As market indexes set historical all-time highs, who cares about bonds? Stocks are all the buzz.

Back in August my letter was First Bonds, Now Stocks. “If you liked the bond market rally this year, then I think you will really enjoy the stock market rally which appears to be gathering steam.” Gather it has. The Dow Jones Industrial Average traded at 17,063 on June 27th, 2016; on March 1st, 2017 it was 21,169 for a 24% rise.

Meanwhile the bubble on Bonds did indeed burst as ten year Treasury yields bottomed at 1.32% on July 6, 2016, before doubling to 2.64% on December 15th. So while stocks were gaining steam, bond prices were indeed weakening as yields doubled. As the Dow rallied, ten year Treasury bonds sank, producing an 11% price loss into the December yield highs. The long bellwether Treasury bond was down 22% in price over the same period.

Both the rise in stock prices and the fall in Bond prices were expected. After bond prices bottomed in December we expected prices to bounce and indeed the bounce appears to be over such that prices are trending lower again as the yield on the ten year treasury is back over 2.50%.

January’s Letter, Lines In the Sand noted Big Bill Gross’s line at 2.60% for the ten year treasury.  At just over 2.50% as March begins, we are within striking distance. (more…)

The Wait Is Over

December 7th, 2016 by Kurt L. Smith

I love it when a plan comes together. The August letter, First Bonds, Now Stocks, could not have been more spot on. The latest rally in Bonds began to reverse in July and it appears the first move towards a Bond Bear Market is now in place. And indeed the excitement the markets reserved for Bonds earlier this year did indeed move to Stocks with a recent exclamation point capping a three thousand point move up in the Dow that began in February.

For those of you reading the press clippings of these latest moves, please remember the narratives are worthless. Trends do not extend forever and long-time readers of this letter know I have been preparing for a change in the long-term trends of Stocks and Bonds for some time.

My excitement that my long wait may finally be over is based on the excitement both the Stock and Bond markets registered in 2016. Soaring prices, plunging and even negative yields, characterized the Bond market all spring long. Prices topped (and yields bottomed) in July with the bellwether thirty year US Treasury bond at 2.08%; by the first of December it was over 3.08%, an almost 50% jump in yield and 19% plunge in price. (more…)

Markets Move; Fed Does Not

October 5th, 2015 by Kurt L. Smith

We have witnessed a reversal from the slow and steady rise of the stock market to greater volatility including a twelve percent decline in the Dow in a mere four days back in August.  Stocks recovered going into the Federal Reserve’s interest rate announcement September 17th, yet the Fed chose not to move on interest rates. (more…)

Rates Rise, Prices Fall

August 12th, 2015 by Kurt L. Smith

Interest rates are moving higher. While markets do not move in a straight line, they do move consistent with the trend. The trend for interest rates is up and the ramifications for investors worldwide will probably be huge. (more…)

Greece, China and Puerto Rico, Oh My!

July 22nd, 2015 by Kurt L. Smith

The mile markers continue to move on by. Kicking the can down the road appears to be running out of steam and now people are truly being hurt as real losses are now affecting millions of people. (more…)

Bond Interest Rates Jump…Finally!

June 22nd, 2015 by Kurt L. Smith

Bonds are grabbing the headlines again and not in a good way.  Long-term interest rates worldwide have jumped about one full percentage point, sending longer-term bond prices down across the board.  Why this is the case is not important; the fact that bond values are evaporating is important. (more…)

NEWS FEED

The $247 trillion global debt bomb washingtonpost.com/opinions/the-2…