The Knowledge Vault
Newsletter Sign-up >>>

 

Latest Newsletters

Posts Tagged ‘low rates forever’

Rate Cuts? Not So Fast (Obviously)

April 3rd, 2024 by Kurt L. Smith

Writing about market corrections is hardly exciting. Investors want to know where a market is going and when. The exciting part is when forward steps are being taken, not the times when the market takes a step back.

After almost forty years of making headway towards lower and lower yields, the market has reversed from 2020 to 2023 as yields rose from near zero to something substantial. Ten-year treasury note yields went from .31% March 9, 2020 to 5.02% on October 23, 2023 (yields and prices per Bloomberg). Shorter term yields, like three-month treasury bills, were negative in March 2020, rising to 5.51% last October 6th.

These were many steps forward in the new trend of higher yields and lower bond prices. But markets do not move in straight lines. A trending market needs to correct, taking a step, or maybe steps, back.

Here is the bad news. Corrections allow the trend to continue. From October 23rd to December 27th, the ten-year treasury yield fell from 5.02% to 3.78%. This correction generated a lot of excitement, particularly from those investors who own long term bonds at substantially higher prices purchased when rates were low. Lower yields boosted longer bond prices in the process.

(more…)

Better Than Best

January 24th, 2020 by Kurt L. Smith

Asset prices were high months ago and as stock prices continue to set records what appeared to be best is now better than best. What a great period to have been an investor!

Bond prices have been higher (and interest rates lower) but not appreciably. While prices have trended lower since their Labor Day high prices and low yields (per Bloomberg), movement so far is at the speed of a glacier.

Gold prices are also near their highest since their 2011 peak of $1921, trading at $1611 earlier this month. And then there are stocks, which appear to be in their own stratosphere. In my November letter I noted how both bonds and gold spurted about twenty percent to their peaks. I didn’t give stocks a chance for a similar nod; I was wrong.

(more…)

High Demand for (Low) Yield

December 16th, 2019 by Kurt L. Smith

Long-time readers are well aware of my call to the end of the thirty-plus year bond bull market in 2012. That’s seven years now behind us. For long-term bonds this period has been quite a topping process (in 2012, 2016 and again in 2019) with the primary result being the tremendous issuance of new debt.

Treasury debt has exploded from $4.3 trillion in 2006 to $15.9 trillion in 2019 (Q2). My debt figures come from a wonderful website, www.sifma.org, check it out.  Luckily the Federal Reserve has been there as the primary buyer, expanding their balance sheet in various quantitative easing programs.

Right behind treasuries in debt expansion is corporate debt, rising from $4.9 in 2006 to $9.5 trillion (Q2). Federal Reserve Chairman Jerome Powell said in October that “leverage among corporations and other forms of business, private businesses, is historically high” –Bloomberg.

Indeed, not only are bond prices high (yields low) but there are more of them! As long as “lower-for-longer” holds, values should hold. Interest rates are low, so low it would appear that negative interest rates are a closer reality than higher interest rates.

(more…)

Slow Moving Bear

October 9th, 2018 by Kurt L. Smith

Having a plan and executing it can be worthwhile in a market in which yields on almost all bonds are rising and their prices are falling. Three quarters into 2018 and yields are up and prices are down on almost all kinds of bonds and across all maturities.

Take a look at this month’s featured municipal bond issue, Eagle Pass, TX, below, and compare it to January’s yields. Yields are higher across all maturities, from short-term to long-term, of at least one half of one percent.  Higher yields mean lower bond prices but yet that message is not is not making a huge dent in performance.  The reason is speed.  Yes, interest rates are up but the speed of change has not had an appreciable negative effect on bond market performance.

Looking at municipal bond indexes we see this.  The S&P Municipal Bond Index is essentially unchanged from January 1st.  Same for the Bloomberg Barclays Municipal Intermediate to Short Total Return Index or their US Municipal Bond Index for that matter (all per Bloomberg).  Check your favorite yardstick and compare.  The reason this is so is because the interest earned so far has been keeping up with principal (price) loss. (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…)

NEWS FEED

Tweetomatic error: Could not authenticate you.