Ten year Treasury has slowly moved up in the past few days. Near 2.8% this morning. I don't think anyone doubts rates are eventually headed higher - but still find the shorter term moves interesting. I think the situation in Ukraine will have long lasting effects on the U.S. economy - ones we can only guess at currently.
Aside from the predictable short term knee-jerk rally in Treasuries and gold after the Russian occupation of Crimea last week, the more significant repercussions relate to a potential increase in U.S. military spending over coming years/decades - along with potentially an early end to "sequester" as we know it. Russia's role in the world energy markets can't be overlooked. And, to the extent China may view U.S. reticence in Ukraine as an invitation to push harder against Japan on the disputed islands issue ... a whole lot of potentially bad things could come out of this.
Increased Federal spending isn't good for bonds. For equities and non-dollar denominated assets it might be. I have noticed OAKBX has held up better than most of my funds recently (after a really rotten start to the year). They've always kept a bit in the defense sector as part of what always seemed to me a good and comprehensive hedging strategy - though I don't fully understand it. Currently, General Dynamics is among their top 10 holds.
Just some thoughts "killin time" this morning.
Comments
The cold war generation is fixated on Russia because they don't really know the new world. There might be a battle of egos in Ukraine but it has zero security issues for the US even if the entire Ukraine is annexed by Russia.
The threats we have for the future isn't solved by war planes and missiles, it is solved by electronic measures against cyber attacks to create physical damage for which we have very little organized preparation mostly because most Washington politicians don't understand it and feel naked without surrounding themselves with missiles and ships.
Regarding bonds, the interest rates are at the same place we were at the bottom of the financial crisis in 2009. It is basically driven by Fed policies and as safety haven to park when equities go south. At the high valuations we are in, interest rates won't go much higher since people expect a pullback or correction this year and expect a flight to safety that drops the interest rates so it will be stuck in a trading range driven by news from the Fed. Serious moves won't happen until Fed decides to increase rates.
Washington doesn't have money to spend even on defense because contributing to debt is political suicide at the moment.
I'm "shocked" that showboating would ever occur in Washington.
And in memory of the immortal Everett Dirkson: "A submarine here and a carrier there ... and pretty soon you're talking about real money."