The Knowledge Vault Newsletter Sign-up >>>

 

Posts Tagged ‘worthwhile bonds’

What Is An Investor To Do?

August 24th, 2021 by Kurt L. Smith

For forty years you have known the answer to this question. You buy and you buy more. Hindsight is wonderful and it also can give you great confidence. Stay the course, invest with us…turn on the television and follow the financial ads. So easy.

Except the world changed eighteen months ago. Not the pandemic; the bond market top-ticked almost forty years of a bull market. As a reader of this letter, you know the bellwether US treasury bond had a final run-up of forty points and then lost all of that. The bond bull market is over.

You may question, or continue to question, the relevance of such a situation. Obviously stock investors do not care, judging by the corresponding market move in stocks. But what is eighteen months in the scheme of things?  We are talking about your retirement or managing money (yours or others)?  These are long-term concerns. Besides, what if the run-up in stocks is merely the stock version of what we saw in bonds in 2020? What happens when stocks top-tick?  The status of the bond market is relevant, regardless of how or when it chooses to assert itself.

I do not need higher interest rates to find worthwhile bonds. I can do it in a low-to-no-interest rate environment as I have for the past ten-plus years. My interest in following the bond market, particularly the movement of US Treasury bellwether’s is because it matters.

(more…)

Correction Over!

July 28th, 2021 by Kurt L. Smith

Now that I have your attention, I hope I do not lose it by saying I am talking about long-term treasury prices. The March 2021 letter, Should We Be Traders? noted how the thirty-year bellwether treasury bond had lost all of its forty-point gain from the March 9, 2020, bond market top. The bond market moved from bull to bear, and I expect this bear to be a long one.

The bellwether bond we watch is the 2.375% of 11/15/49, trading at 141 on March 9, 2020 (all prices per Bloomberg, rounded for simplicity). The low since then was March 18, 2021, when it traded at 98. Over the past four months prices have bounced upward, trading at 113 last week on July 20th. This upward bounce in price is the correction that is now over.

When prices fall about 43 points over twelve months the expectation is for a bounce to occur, here about 15 points, over a shorter period. This price action also can be seen in yields, in the opposite direction, with yields rising from 1.00% in 2020 to 2.44% in March 2021 and back down to 1.82% last week.

Similar price/yield action has occurred in the ten-year treasury yield. The 1.50% of 2/15/30 traded at .31% on March 9, 2020, and 1.67% on March 31, 2021 and 1.04% last week on July 20th. Low to high then a bounce; this is the correction!

What does this mean? The idea of lower for longer (i.e., low interest rates) was shattered with a forty-plus point move and reversal. Interest rates have moved back down but this is not indicative of where interest rates “should be”, but rather a prelude to the next move which is to new interest rate highs (and price lows).

(more…)

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.

(more…)

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…)

NEWS FEED

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