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Posts Tagged ‘worthwhile bonds’

Ground Hog Day

February 24th, 2020 by Kurt L. Smith

Though Ground Hog Day was officially February 2nd, I am referencing the 1993 movie starring Bill Murray. I feel like I am reliving the same day over and over again in the market place.

The Dow Jones Industrials traded today at the same level it did six weeks ago. Yet every morning I am seemingly greeted with a new intraday high for stocks. Bonds are scarce, yet every day I hope to scratch and claw my way to several worthwhile pieces.

Last month I wrote that asset prices were Better Than Best. After weeks of Ground Hog Days, guess what?  Prices are still Better Than Best. That is the danger in delaying writing this letter in hopes of writing something new. There is nothing new.

Even when we think there is something new (in Washington or in Wuhan), it is seemingly of little consequence. I don’t write about those types of things anyway, preferring to watch what the markets are telling me. Obviously, they have been telling me the transition from upward trend in prices to downward trend is taking its time. Does that mean six more weeks of this like the groundhog prognosticates? We will know when the markets tell us.

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Treasuries Tank; Any Followers?

June 1st, 2018 by Kurt L. Smith

When it comes to interest rates you know we rejected the “lower rates for longer” mantra from the beginning. Largely this was due to the fact that we believed interest rates were bottoming and the new long-term trend of ever increasing rates, which we called in November 2012, was just beginning.

The chart below details significant interest rates over the past five-plus years of our journey. Longer-term rates on ten year and thirty year notes and bonds challenged our premise briefly in 2016, allowing the “lower rates for longer” mantra to swell, but the results, or shall I say, performance, speaks for itself.

 

All-Time Low Yield            June 2017  Low                       Recent High

0.14%      9/20/11                1.26%    6/2/17                   2.60%    5/17/18

0.53%      7/25/12                1.67%    6/14/17                2.95%    5/17/18

1.32%      7/6/16                   2.10%    6/14/17                3.13%    5/18/18

2.09%     7/11/16                 2.68%    6/26/17                3.26%    5/18/18

-Source: Bloomberg

 

Owners of ten year US Treasuries in July 2016 have watched the yield on their note increase an astonishing 181 basis points, for a 13 percent price decline in the note’s value (vis-à-vis the Treasury 1.625% 5/15/26). For owners of the bellwether thirty year bond, the 117 basis point increase in yield has lowered the bond’s value about 23 percent (vis-à-vis the Treasury 2.50% 5/15/46).  All treasury prices per Bloomberg.

Double digit loses in longer-term treasury prices over the past two years are huge. Yet even at the most recent high yields lately of 2.60% to 3.26%, they continue to look low by historical standards.  With double digit price damage occurring at what many folks consider “low yields,” it should prepare bond investors for continued and greater carnage as yields continue their (so far) slow movement to more “normal” interest rates. (more…)

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