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10-Year Treasury Yield Drops To New 2014 Low 2.532%
OK, so I didn't stay away as long as I said. I lied, so shoot me. Am I the only one who has been in complete awe, amazement, and pure joy at the performance of Treasuries in 2014? Something must be at work below the surface. Ted, not sure if the link above has been previously posted but maybe Gundlach (who I have never in awe of) is onto something. Meanwhile, in the real world, junk munis (NHMRX and ABTYX) which we discussed in January have been nothing short of spectacular this year.
looks like it's european arb that is playing here. you want to have a german 10yr bond @ 1.3% or italy's one @ 2.8%? (italy!!!) US @ 1.6% looks like a bargain considering risk /reward. of course munis had their own little rally on top of the treasury's one: the speads which were too wide throughout most of last year (since the tapergate) have contracted, and issuance is just 30% (!!!) of last year's. thus the longer duration one had coming into 2014 and the more munis one had, the better the run has been. how long can it go though, especially considering today's positive PPI surprise?
in the meantime, bill gross invented the new neutral and keeps buying PDI and PCI for his personal account and his childrens trusts...
If the reasons given in the link are correct then the bull markets in munis should last a long time. I would guess that the since people are wary of stocks they are searching for anything with a yield. High Yield corp is near an all time high and it looks like munis have more room to run.
And talk about picture perfect charts below, albeit much prefer NHMRX since I am not into ETFs or Puerto Rico debt. Plus NHMRX and all the open end junk munis are in even tighter rising channels.
Yes, isn't it comforting (and--c'mon, admit it-- just a tad sweet) when one's instincts are validated, after a multi-month wait, and ya know your mojo sensors still work?
@fundalarm: "....considering today's positive PPI surprise." Positive? (seriously?)
Yes, Junkster, great to see you back! SUBFX is suffering from this development. I am right now regretting having swapped out of LSBRX, but of course the story might be different in a year.
@heezsafe Howdy, Would you clarify the meaning of: "Yes, isn't it comforting (and--c'mon, admit it-- just a tad sweet) when one's instincts are validated, after a multi-month wait, and ya know your mojo sensors still work?" Take care, Catch
@catch22: now why would someone, who just day's ago claimed to be batting 100% on interest rate predictions, need to ask me that? Today's good bop-up in 10Y, continuing the (long-awaited by me) trend--- isn't that what you expected (despite all the media stories since Xmas about scary bonds and inflation fears, trying to flip us into stocks or fxd income that has credit risk, which is where IMO the real and growing risk exists)? And now, we get a little reward for blocking out the noise since the beginning of the year. Isn't that the way you've been playing it, and positioning accordingly? But perhaps I read too much into Junkster's comment about the "pure joy" he feels about this year's Treasury performance; that's why I wrote what I did. So, what do you think about it--- going to circa 2.48% on the 10? then... wait&see, before taking a trim?
@expatsp: re. SUBFX. Well, at least now it's really obvious that a major aspect of their overall strategy is to short Treasuries, no? The transparency of that fund ... doesn't exactly leap out atcha. So now, maybe a time to slip some more $ in?
I'm glad to hear you suggest it (and congratulations on your good calls!) but I'll probably just sit tight for now. I want to hold on to my cash (which ain't much) in case something more dramatic happens in either the stock or bond market.
At least SUBFX hasn't lost much so far on a wrong bet, it's just not going up; since their managers say in the current environment they want to preserve capital and wait for better opportunities, I guess that's not bad. And anyway I look to my bond funds for safety, not excitement.
A blip I noted this past February; that I noted previous at FundAlarm, prior to MFO. The Goldman forecast was interesting (link near bottom of linked page).
>>>Jeez, did I write this??? .....who just day's ago claimed to be batting 100% on interest rate predictions, need to ask me that? Ah, the problem with getting older and the brain function.....my political aspirations are finished. However, I will say that I was confident about interest rate movements.
As to risk/reward and the big trump at this point of life at this house is capital preservation to let the monies live and compound another day forward.
Lastly, not directly related to any and all flavors of bonds; is that we have never been fussy about, from where the profits arrive.
Thanks for the reply. Take care of you and yours, Catch
heezsafe says >>But perhaps I read too much into Junkster's comment about the "pure joy" he feels about this year's Treasury performance; that's why I wrote what I did.<<
My "pure joy" about Treasuries' performance is since 1/24 I have had my entire liquid net worth in junk munis (which obviously are impacted by Treasury rates) after taking some incremental positions there earlier that month (it's all in the MFO archives) But I invest/trade purely on price action. I trade what I see (price) not what I think as my predictive/forecasting abilities are about nil. Of course, that puts me in the company of some of the greatest minds on Wall Street who also have zero predictive/forecasting abilities. They just don't seem to admit it.
Bond market action seems to be expecting a period of stagflation. Hope it is wrong because no asset class including cash would work well in such a period. Gold and TIPs have already priced in significant inflation to be a good hedge.
@fundalarm: "....considering today's positive PPI surprise." Positive? (seriously?)
'positive' means 'more than expected' in my book... but english is my second language and something may be getting lost in translation. i assume the fed wants more inflation rather than less inflation at this point in the economic cycle. european disinflation on the verge of deflation is not a very healthy thing. today's IP numbers are disappointing and caused the 10yr yields to go to - GASP - 2.47.
more: "The Consumer Price Index (CPI) posted another relatively firm increase in April, with the headline number increasing 0.26% and the core number rising 0.24%. By no means does the US have an inflation problem in the traditional sense, but with the three-month annualized run rate on core CPI sitting at 2.26%, it doesn't feel as though "lowflation" is dogging the economy either. Based on today's number and yesterday's PPI, we project that the core PCE price index will advance 0.15% in April, which would take the year-ago increase to 1.41% -- this would be low relative the Fed's 2% objective, but noticeably above the 1.10% figure registered as recently as February. It is hard to say with precision if this drift higher is in line with the Fed's latest forecast released in March (which has a 4Q14 mid-point of 1.55% on year-ago core PCE), but at the least their outlook for a directional move higher in inflation is being confirmed. "
Thanks Fundalarm for the CPI info. Who knows what's going on with bonds ... But, from my perspective, commodities and natural resource funds are having a very good year - and foreign currencies are doing well also. Neither is consistent with deflation at home. So, I'm inclined to think this is a temporary hiccup in bonds - possibly some retrenchment by equity investors back to fixed income.
One talking-head on Bloomberg radio yesterday suggested it could be due to big pension funds taking profits on equities and shifting the $$ to longer term bond holdings. She claimed these movements are a lot harder to track than are mutual fund flows.
Don't know if any of this is true - just tossing out couple possibilities. --- And yes CATCH: While I question your claims of 100% accuracy in calling rates, I agree with you Treasuries are nice to have when equities are sputtering. Dead-on there.
I agree with @fundalarm, at this time, and today. The investment tides do move about, eh? PPI and CPI have changed a bit from routine movements. We moved into some plain TIPs funds the last week of February. "Why?", you may ask. This sector had a pretty good downward thump in 2013 and we considered this bond area as oversold. TIPs are held by a variety of investors and active managed funds; be they bond funds, balanced funds or psuedo cash positions in funds. We still continue to monitor these for indicators: LTPZ STPZ and TIP. Those who hold bond funds will likely find a decent move up today, again; depending on the exposure of the fund to TIPs holdings and the duration. If the equity markets continue to slosh about, more monies may move into this area. The summary would be an inflation and risk off play. How long the trend, will be shown by the charts. Whether the correct move or not. Individual investors, will move monies to this area; if the equity markets remain sloppy. I do believe pension funds have also been restocking in the investment grade bond sector since the beginning of this year; which includes the Treasury areas, too.
I am impressed by the Moosecall in April for long dated treasuries via EDV. Even though that call was after a significant run already, this asset class has continued to outperform any other asset class.
Scott Minard /Guggenheim Macro View "Of course, with much of the U.S. fixed-income market now overvalued, we must guard against the pitfalls of overvaluation, but, as I have said before, markets that are overvalued and then become even more overvalued are called bull markets." http://guggenheimpartners.com/perspectives/macroview/breaking-good
John Flahive, director of fixed income at BNY Mellon Wealth Management, said he’s considering closing the company’s Municipal Opportunities Fund (MOTIX) to new investors as tax-free yields fall to 11-month lows.
I admit this comment is pretty far down in the thread, but: Gundlach's argument that retirees will be buying bonds yielding under 3% because they need stable income must apply to a more successful class than mine. I had assumed that foreign governments or rich people (of any nationality) bought US treasuries because the bonds' security was more important than their yield.
If you can afford to buy $1M in bonds to earn $25K before taxes and inflation, you must either be a multimillionaire or have a very frugal life style (which may be forced upon some of us).
The argument that we should intentionally use up our principal for retirement income is partially valid, but most of us do not plan for our funds and our existence to expire simultaneously, because we hope to insure our progeny against an uncertain future.
Gundlach is obviously a smart guy, and I invest in his funds, but it seems one would need to have significant retirement savings for this view to prevail. I think that higher return on US bonds vs other developed countries is a more valid reason.
As an aside, he's not the manager but his Doubleline Emerging Markets Income fund (DLENX) has been an impressive and consistent low volatility performer. If I get stopped out of NHMRX would consider going there assuming its bull trend continues.
You noted: "If there's anyone here who's consistently called the interest rate picture accurately over the past 3 years please come forward?" (previous thread)
"While I question your claims of 100% accuracy in calling rates"
>>>The following, all in good nature, kindness and intent.
I raised my hand regarding the first statement. I didn't state 100% accuracy, per the second statement.
Our house continued(s) to monitor interest rates, central bank policies (globally) and other published data (unemployment, etc.). This monitoring was and is only for our use in establishing investment positions. We, of course, don't always get this right; but the interest rate movements have not caused us to adjust much of our bond positions in active managed, multi-sector bond funds. The most recent exceptions being total position sells in FNMIX and TIPs funds in February of 2013.
Hoping we all survive our risk/reward adjusted style and don't find any downside fires in a portfolio burning our monetary arses.
Reply to @Catch22: Yep - Was just pulling your leg Catch with the comment. Agree such "overkill" not cool. I did appreciate that you responded to my original query in good humor. And your bonds have indeed held up longer than most any here (including the Professor methinks:-) might have expected!
Comments
OK, so I didn't stay away as long as I said. I lied, so shoot me. Am I the only one who has been in complete awe, amazement, and pure joy at the performance of Treasuries in 2014? Something must be at work below the surface. Ted, not sure if the link above has been previously posted but maybe Gundlach (who I have never in awe of) is onto something. Meanwhile, in the real world, junk munis (NHMRX and ABTYX) which we discussed in January have been nothing short of spectacular this year.
in the meantime, bill gross invented the new neutral and keeps buying PDI and PCI for his personal account and his childrens trusts...
and finally, welcome back, hiyield/junkster!
I would guess that the since people are wary of stocks they are searching for anything with a yield. High Yield corp is near an all time high and it looks like munis have more room to run.
Fundalarm, I think you are 110% spot-on. And they keep loosening over there.
As for Gross, below is a link to his insider activity in PDI and purchase history. He seems to be on a mission and so far so good.
http://www.secform4.com/insider-trading/1510599.htm
And talk about picture perfect charts below, albeit much prefer NHMRX since I am not into ETFs or Puerto Rico debt. Plus NHMRX and all the open end junk munis are in even tighter rising channels.
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=hymb&insttype=&freq=&show=
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=nhmrx&insttype=&freq=&show=
@fundalarm: "....considering today's positive PPI surprise." Positive? (seriously?)
Great to see your posts!
Mona
Howdy,
Would you clarify the meaning of: "Yes, isn't it comforting (and--c'mon, admit it-- just a tad sweet) when one's instincts are validated, after a multi-month wait, and ya know your mojo sensors still work?"
Take care,
Catch
Hope all is well in your world.
Regards,
Catch
Today's good bop-up in 10Y, continuing the (long-awaited by me) trend--- isn't that what you expected (despite all the media stories since Xmas about scary bonds and inflation fears, trying to flip us into stocks or fxd income that has credit risk, which is where IMO the real and growing risk exists)? And now, we get a little reward for blocking out the noise since the beginning of the year.
Isn't that the way you've been playing it, and positioning accordingly?
But perhaps I read too much into Junkster's comment about the "pure joy" he feels about this year's Treasury performance; that's why I wrote what I did.
So, what do you think about it--- going to circa 2.48% on the 10? then... wait&see, before taking a trim?
@expatsp: re. SUBFX. Well, at least now it's really obvious that a major aspect of their overall strategy is to short Treasuries, no? The transparency of that fund ... doesn't exactly leap out atcha. So now, maybe a time to slip some more $ in?
I'm glad to hear you suggest it (and congratulations on your good calls!) but I'll probably just sit tight for now. I want to hold on to my cash (which ain't much) in case something more dramatic happens in either the stock or bond market.
At least SUBFX hasn't lost much so far on a wrong bet, it's just not going up; since their managers say in the current environment they want to preserve capital and wait for better opportunities, I guess that's not bad. And anyway I look to my bond funds for safety, not excitement.
A blip I noted this past February; that I noted previous at FundAlarm, prior to MFO. The Goldman forecast was interesting (link near bottom of linked page).
>>>Jeez, did I write this??? .....who just day's ago claimed to be batting 100% on interest rate predictions, need to ask me that?
Ah, the problem with getting older and the brain function.....my political aspirations are finished.
However, I will say that I was confident about interest rate movements.
As to risk/reward and the big trump at this point of life at this house is capital preservation to let the monies live and compound another day forward.
Lastly, not directly related to any and all flavors of bonds; is that we have never been fussy about, from where the profits arrive.
Thanks for the reply.
Take care of you and yours,
Catch
My "pure joy" about Treasuries' performance is since 1/24 I have had my entire liquid net worth in junk munis (which obviously are impacted by Treasury rates) after taking some incremental positions there earlier that month (it's all in the MFO archives) But I invest/trade purely on price action. I trade what I see (price) not what I think as my predictive/forecasting abilities are about nil. Of course, that puts me in the company of some of the greatest minds on Wall Street who also have zero predictive/forecasting abilities. They just don't seem to admit it.
"The Consumer Price Index (CPI) posted another relatively firm increase in April, with the headline number increasing 0.26% and the core number rising 0.24%. By no means does the US have an inflation problem in the traditional sense, but with the three-month annualized run rate on core CPI sitting at 2.26%, it doesn't feel as though "lowflation" is dogging the economy either. Based on today's number and yesterday's PPI, we project that the core PCE price index will advance 0.15% in April, which would take the year-ago increase to 1.41% -- this would be low relative the Fed's 2% objective, but noticeably above the 1.10% figure registered as recently as February. It is hard to say with precision if this drift higher is in line with the Fed's latest forecast released in March (which has a 4Q14 mid-point of 1.55% on year-ago core PCE), but at the least their outlook for a directional move higher in inflation is being confirmed. "
One talking-head on Bloomberg radio yesterday suggested it could be due to big pension funds taking profits on equities and shifting the $$ to longer term bond holdings. She claimed these movements are a lot harder to track than are mutual fund flows.
Don't know if any of this is true - just tossing out couple possibilities.
---
And yes CATCH: While I question your claims of 100% accuracy in calling rates, I agree with you Treasuries are nice to have when equities are sputtering. Dead-on there.
We moved into some plain TIPs funds the last week of February. "Why?", you may ask.
This sector had a pretty good downward thump in 2013 and we considered this bond area as oversold.
TIPs are held by a variety of investors and active managed funds; be they bond funds, balanced funds or psuedo cash positions in funds.
We still continue to monitor these for indicators: LTPZ STPZ and TIP.
Those who hold bond funds will likely find a decent move up today, again; depending on the exposure of the fund to TIPs holdings and the duration.
If the equity markets continue to slosh about, more monies may move into this area.
The summary would be an inflation and risk off play. How long the trend, will be shown by the charts.
Whether the correct move or not. Individual investors, will move monies to this area; if the equity markets remain sloppy. I do believe pension funds have also been restocking in the investment grade bond sector since the beginning of this year; which includes the Treasury areas, too.
Take care,
Catch
"Of course, with much of the U.S. fixed-income market now overvalued, we must guard against the pitfalls of overvaluation, but, as I have said before, markets that are overvalued and then become even more overvalued are called bull markets."
http://guggenheimpartners.com/perspectives/macroview/breaking-good
John Flahive, director of fixed income at BNY Mellon Wealth Management, said he’s considering closing the company’s Municipal Opportunities Fund (MOTIX) to new investors as tax-free yields fall to 11-month lows.
“A lot of the opportunities have been washed away in the last month and a half,” said Flahive, who helps oversee $22 billion in munis from Boston. “There really isn’t much out there.”
http://www.bloomberg.com/news/2014-05-15/bny-mellon-may-close-muni-opportunities-fund-amid-tax-free-rally.html
Gundlach's argument that retirees will be buying bonds yielding under 3% because they need stable income must apply to a more successful class than mine. I had assumed that foreign governments or rich people (of any nationality) bought US treasuries because the bonds' security was more important than their yield.
If you can afford to buy $1M in bonds to earn $25K before taxes and inflation, you must either be a multimillionaire or have a very frugal life style (which may be forced upon some of us).
The argument that we should intentionally use up our principal for retirement income is partially valid, but most of us do not plan for our funds and our existence to expire simultaneously, because we hope to insure our progeny against an uncertain future.
Gundlach is obviously a smart guy, and I invest in his funds, but it seems one would need to have significant retirement savings for this view to prevail. I think that higher return on US bonds vs other developed countries is a more valid reason.
http://finance.yahoo.com/news/gundlach-could-verge-one-biggest-190053082.html
As an aside, he's not the manager but his Doubleline Emerging Markets Income fund (DLENX) has been an impressive and consistent low volatility performer. If I get stopped out of NHMRX would consider going there assuming its bull trend continues.
You noted: "If there's anyone here who's consistently called the interest rate picture accurately over the past 3 years please come forward?" (previous thread)
"While I question your claims of 100% accuracy in calling rates"
>>>The following, all in good nature, kindness and intent.
I raised my hand regarding the first statement. I didn't state 100% accuracy, per the second statement.
Our house continued(s) to monitor interest rates, central bank policies (globally) and other published data (unemployment, etc.). This monitoring was and is only for our use in establishing investment positions. We, of course, don't always get this right; but the interest rate movements have not caused us to adjust much of our bond positions in active managed, multi-sector bond funds. The most recent exceptions being total position sells in FNMIX and TIPs funds in February of 2013.
Hoping we all survive our risk/reward adjusted style and don't find any downside fires in a portfolio burning our monetary arses.
Take care,
Catch
Thanks. Regards.
http://finance.yahoo.com/q/hp?s=HYD+Historical+Prices