The bear market in bonds appears to be picking up steam. Strong employment and wage numbers this morning have pushed long-term Treasury yields past 2.8%—their highest level since 2013. Since the start of the year, 10-year Treasury rates have increased by 43 basis points or 0.43 percentage points. From a charting perspective, there isn’t much support for bonds until rates hit 3%. A welcome development in our view, but a not so pleasant development if you are among the investors who have reached for income by taking duration risk in the bond market.
As of this morning, the Vanguard Long-term Treasury ETF is down 5%. Contrast that with investors who have kept maturities short. Treasury bills are up on the year and short-term investment grade bonds are down about a quarter of a percentage point.
Investors who have sat patiently in short-term bonds are now well positioned to take advantage of the opportunities that are likely to emerge in longer-term bonds.