At 1.78% on the 10 year Treasury this morning, don't know what rational investor would own them - other than as a strategic hedge in some risky portfolio - perhaps one rich in junk bonds. Come on ... yield is so low you're better off in a money market fund. Why put any of your $$ at any risk for such measly return potential? And, for most, ain't anywhere near 1.78% - as ya got them nasty fund fees. Maybe a chance to earn 1.38% in that long-term Treasury fund after expenses? Markets always run to extremes and this is surely one example. Can't imagine the risk-reward being substantially better on anything above BBB - borderline investment grade. Sure, got some funds holding them as a hedging vehicle. A bit different from ma & pop in a 401K buying the things. Lota factors at work in the markets. It's May of course. One thing to watch for is jaw-boning in speeches by Fed governors if markets deteriorate further. They're quite good at moving markets with a variety of mixed signals ... Europe got clocked overnight with several major indexes off around 2%. Asia mildly off. Gold down $24 this morning at around $1560. Nice $10-$20 drop in oil from recent highs. ($94 on one exchange).
Comments
Fed's have short term rates set, and generally in their control. As buyers enter the other duration periods of the Treasury issues, the Fed doesn't neccessarily have to take any action in this space; if the yields are acceptable to them.
And yes, 10 year is not a buy and hold at this time. Make the money on the captial/price appreciation and leave the area as needed going forward, not unlike the equity sector.
The global markets may be continuing to have a "Japan moment".
Take care, up there,
Catch
I agree with Hank absolutely in theory regarding treasuries, but I think you have a populace that (and this is a generalization) that is prioritizing capital preservation over anything, and are desperate for any sort of yield. I think when this reverses itself, it could be quick and swift - there's been a very large move into treasuries, and there's always the chance that something could trigger a sudden move out. That said, it may not happen for days or months or possibly even years. People (especially those in/near retirement) just don't want to go into risk - I think three years ago turned off a fairly large group of people to investing in stocks, and they aren't coming back - at least for a long time.
There are also a number of preferreds that I'm seeing trading over $25/par.
Days like today aren't helping - they will only likely result in increased outflows from stock funds (although I think it will be interesting if we continue to see outflows from domestic funds and flat or slightly up/down into foreign stock funds.)
Are we Japan? I don't think we are, although I question how much longer Japan's situation is even sustainable.
With markets behaviors I can see a wheel with 12 "compass points" that could represent 12 major investment sectors. I can also envision at the center of the wheel, a loaded and cocked gun with the safety off; each gun being pointed at each sector. As the wheel spins, any number of pins on cams of risk move as required by the markets; and could/would trip/fire one or any number of guns at a particular sector(s). I do believe I hear some shots just about now...............:)
In sync with you on the variables of "reality bites" going forward.
If the big kids are not able to or unwilling to support the equity markets one more time; the many equity investors who remain away from the equity sectors will likely remain "forever". The second portion, would be the younger one's who pay attention and would continue to wonder whether they choose to risk their monies. 'Course, I do believe various equity sectors with continue to find favor. The obvious problem is determing the why, when and where.
We have chewed upon this potential problem area for a few years now; but the circumstances remain.
Regards,
Catch
I think a fair amount of young people are turned off to investing based upon what happened in 2008, but there's also a number of other factors (massive student debt, etc) that doesn't leave much for risk.
You have a society as a whole that's largely unprepared for retirement and pensions that are massively underfunded and probably operating on unrealistic expectations on top of it.
As for the whole thing, the last years have emphasized short-term solutions over long-term sustainability, and while those short-term fixes may be breaking down now, I continue to think that they will be continued if need be. There are serious, structural issues within the economy, and until we actually pull up our sleeves, we're just going to keep having these issues pop up again and again.
All that said, I still don't like treasuries.