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Worst day for bonds I’ve seen in a while

10-Year U.S. Treasury 1.93%

CNBC link brings up the current rate. I find it useful. Thought others might.

https://www.cnbc.com/quotes/US10Y

Comments

  • edited February 4
    Thank you for sharing. Must be quite a bit of selling to raise the 10 year Treasury yield to 1.9%. As of Dec 31, 2021, the yield was at 1.512%. That is quick rise of 40 basis points! It is important for investors to review the duration of bond funds and to make adjustment before mid-March when rate hike starts.

    Regardless the 3-5 rate hikes expected, that is a long way to go before reaching the level (2% in late 2019) prior to point when the pandemic started. Without buying $B bonds by the Fed, stock market have to show their earning are worthy of their price.
  • edited February 4
    .
  • @MikeM, I stand corrected. I will correct my original post.
  • edited February 4
    This job report released today is the main cause of the spike in rates.

    Story

    ISTM the Fed’s control farther out (10 years) is minimal. Simply jacking up the overnight lending rate (which has been signaled in advance) could have the opposite impact on the 10-year bond if it causes investors to think the economy is about to slow. They might actually sell equities and buy bonds for protection. On the other hand, if the Federal Reserve stops buying bonds or begins to sell off their huge existing balance sheet that should cause longer rates to rise, as there’d be a larger supply of bonds looking for new owners.

    It’s worth considering the effect on various types of hybrid funds. Balanced or allocation funds holding longer dated bonds will suffer inordinately. So will many hedge-type funds. Funds like TAIL (I own), SWAN, and DRSK invest mainly in bonds (around 90% of their assets). The remaining roughly 10% is used for options trading designed to protect against equity market downside.
  • edited February 4
    Yes... about that jobs report-

    • so we get the good news that a whole bunch of jobs have been filled...

    • which suggests, it seems to me, that pressure on employers to pay more to get workers is lessened...

    • which should help to keep prices maybe a bit lower...

    • and also suggests that jobless benefits payments could be decreasing...

    • which is apparently interpreted by the financial community to indicate increased inflation...

    • which then leads to yet another market retreat.

    OK, so what am I missing here?
  • IMHO, market thinks that blowout job report means wage pressure will increase, leading to inflation, higher bond yields, dividend stocks suffer, price-earnings ratios compress.XLF having banner day as market thinks bank profits will increase with increased rates.
  • Yes, that's of course the crux of my evident misunderstanding here: why would a lot of jobs getting filled mean that wage pressure will increase?
  • Maybe high job turnover with workers leaving seeking more pay?
  • Damned if I know. Let's see if other MFOers weigh in on this. Thanks for your reply.
  • edited February 4
    I don’t know when @MikeM reverted to his “Deer in the Headlights” image, but it’s often a very bad omen. Probably more so having no message attached!
    Old_Joe said:

    Damned if I know. Let's see if other MFOers weigh in on this. Thanks for your reply.

    Basically the jobs report signifies a much “hotter” economy than anticipated and suggests a more aggressive Fed rate hike agenda. Larry Summers today forecast seven .25% hikes this year.

    Another good question for those of us north of age 70: What rate of interest on short or intermediate term investment grade bonds(s) would entice you to sell your remaining equities and move into those bonds? 3%? 4%? 6%? 8%? Other?

    A few such funds I’m familiar with from days at TRP: TRBUX, PRWBX, PRGMX
  • edited February 4
    "Basically the jobs report signifies a much “hotter” economy than anticipated"

    OK, so due to COVID lots of people were put out of work. Lots of complaints from employers moaning about inability to maintain or increase output because of labor shortage. To a great extent governments covered the economic situation with benefits. That seemed to help a lot.

    Now, lots of people back at work. All of a sudden this is bad?? If so, the answer is obviously to decrease hiring people and the economy will be great.

    Oh, wait... isn't that pretty much what Hoover said back in '29 ?? How did that all work out?

    So: people out of work... BAD! People back at work: BAD!

    Hello?
  • @hank @Old_Joe et al

    Mike McKee (Bloomberg) is the best I am aware of, with making sense of Fed. meetings, jobs numbers and related.

    Several Bloomberg videos here from today/this morning (Feb. 4, 2022).

    I did not watch all of these in full this morning, but I have the impression that there is a problem with obtaining "proper" data about the numbers.

    Remain curious,
    Catch
  • edited February 4
    Divorce b/w Main St. and Wall Street, again. Nice bump-up today, but not bonds. And if your stuff is tied to the DJ, you're in the red. Mairs and Power Balanced = MAPOX. Down -0.38% on Friday, today. PRFRX FR/BL was my best bond fund, down just a penny.
  • Agree with Catch that Bloomberg’s McKee is very good. If anyone ever needs to sober up in a hurry find something with Jeremy Grantham to watch. Was on Bloomberg a week or two ago.
  • Jeremy Grantham recently predicted that U.S. markets are in an epic "superbubble."
    He very well may be right this time.
    However, Mr. Grantham has often been bearish during the past decade.
    Investors who implemented portfolio changes based on his predictions would have fared poorly.
    Link
  • Grantham? Scary stuff. But I’ll side with Mark Twain.

    image
  • I'm buying VGSH and VGIT each time they hit 52 week lows. Looking to capture decent yield for the first time in years, and treasury's will still be inverse to equities in a real crises as opposed to just rising rates. Feeling good about this, short-term pain for long term gain. I'll start nibbling at EDV when the 10 year crosses over 2%.
  • @wxman123. I too would like to capture “decent yield”. I wonder if you think that the bond market has already priced in all of the rate increases the Fed is seeming committed to? I wonder how long the short term pain might last? One can only wonder.
  • No one knows, markets tend to overshoot both up and down. Stay shorter duration and double down as needed, feels good in the treasury space (tax free accounts).
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