A Low-Risk Inflation Hedge
The conventional wisdom is that bonds are a terrible investment when inflation accelerates. The theory is that rising inflation causes interest rates to rise and bond prices to plummet. The financial media has been pounding the table on this thesis for months. Check out “Stop Gobbling Up Bonds—They’re... Read the full story
The Bear Market in Long Bonds
Soaring long bond yields have pushed the PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF down 26% from its August high. Investors who bought the PIMCO ETF in August have now lost more than 7 years interest. Compare that to the PIMCO 1-3 Year Treasury ETF which is down only 0.65% from its 2010... Read the full story
Interest Rates Surge
Long-term interest rates are surging. After falling below 2.40% in October, the ten year T-note yield has risen to 3.26%–an increase of 86 basis points. An investor who purchased long bonds at their yield low is down almost 7% in only two months. That’s almost 3 years worth of interest. Read More →
Municipal Bonds Plummeting
Muni bonds are cratering. The iShares National Municipal Fund is down more than 5% since the beginning of November. Rising long-term interest rates, a flood of new muni issuance, and lingering state and local budget issues are all contributing to the violent move down in muni bond prices. Read More →
Stock Market Bulls on Shaky Ground
The chorus of bullish stock-market pundits on CNBC has become deafening in recent months. The justification for buying stocks that I hear most often from this crowd is that stocks are cheap because bond yields are low. Many bulls will tell you that you should dump your bonds in favor of stocks because... Read the full story
TIPS Signal Higher Inflation
The bond market made history this week: investors paid to lend the government money. The government may want to throw a parade. Investors shouldn’t. On Monday, five-year Treasury inflation-protected securities (TIPS) were auctioned off at a negative yield of -0.55%. Demand was so strong that the Treasury... Read the full story
TIPS: Paying to Lose?
What would you pay for inflation protection? Investors buying Treasury Inflation Protected Securities (TIPS) are now willing to pay as much as 0.37% annually for inflation protection. In other words, these investors are buying bonds that are guaranteed to lose money in real terms in order to protect... Read the full story
A Steaming Stew of Toxic Bonds
With short-term interest rates pinned near zero and long rates moving downward on the prospect of more Fed money printing, conservative investors and savers are being starved of yield. These investors are busy scouring the investment landscape for opportunities to pick up yield. The hucksters and promoters... Read the full story
Don’t Miss This Opportunity
Long-term interest rates are at their lowest level in over four decades. Today, the Treasury can borrow money for 30 years at an interest rate of less than 4%. Adjusted for trend inflation, Uncle Sam is looking at a rate below 1%. Long rates of less than 4% are even more surprising given the sorry state... Read the full story
More Trouble in the PIIGS Pen
Despite the best efforts of European policy makers, the CDS of the Euro-area’s PIIGS countries continue to signal severe stress. Ireland is the latest country to come under pressure from financial markets. Irish CDS have recently reached a new high. The market is anticipating that a default may be... Read the full story
