• 13 hours Walmart Reaches Out To Chilean Government For Protection
  • 17 hours The Most Exciting Gold Find Of The Decade
  • 19 hours Mining Boom Sparks Deforestation Concerns
  • 2 days The Cannabis Culling Has Wall Street Disappointed
  • 2 days Vigilante Offers $100,000 Bounty To Hack Banks
  • 3 days The Dairy Industry Is Dying
  • 3 days The Most Impressive Electric Vehicle Of The Year
  • 4 days Gold Miners Are Having A Stellar Second Half
  • 5 days How 3D Printing Is Turning Each And Every Industry On Its Head
  • 5 days Is The $3.5 Trillion Healthcare Industry About To Get Much More Transparent?
  • 6 days Gamblers Are Betting Big On Trump’s Impeachment
  • 6 days Even Banks Can't Answer Aramco's Trillion Dollar Question
  • 7 days Will Bezos Buy The Seattle Seahawks?
  • 7 days 6 Tech Trends Transforming The Travel Industry
  • 8 days Ousted Uber CEO Cashes Out $500 Million In Stock
  • 8 days Trump Prepares For Another Key Tariff Decision
  • 8 days The Free Money Bubble Is About To Burst
  • 9 days The Crushing Reality Of Poverty In America
  • 9 days Should You Buy Into The World’s Largest IPO?
  • 9 days The Infinite Possibilities Of Cosmic Energy
Zombie Foreclosures On The Rise In The U.S.

Zombie Foreclosures On The Rise In The U.S.

During the quarter there were…

Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

  1. Home
  2. Markets
  3. Other

Watching Yields Rise: Are Treasuries a Buy?

From mid-2012 until the beginning of 2014, US treasuries were in a steep decline (yield rising) in expectations of Fed rate hikes that never came.

2014 was a great year for treasury bulls, undoing the carnage of the previous year and then some. 30-year treasuries hit a record low yield.

So far, 2015 has been a bad year for the bulls.


Monthly Yield Curve 2005-2015

$UST30Y Monthly Yield Curve 2005-2015
Larger Image - Charts courtesy of Curve Watchers Anonymous


Daily Yield Curve 2015

$UST30Y Daily Yield Curve 2015
Larger Image - Charts courtesy of Curve Watchers Anonymous

Yields generally bottomed in February, then rose to early-June highs, with the long end sporting a steeper slope as is typical.


Are Treasuries a Buy?

Setting aside the often-heard "certificates of confiscation" phrase, treasuries are a reasonable buy if one believes yields are going to stay steady or decline. They are to be avoided if the expectation is for yields to rise.

Part of the question is whether or not the Fed hikes, and by how much. But it's more complicated than the typical "yes-no when" analysis that we see in the media.

It's very conceivable for short-term rates to rise but long-term yields to decline if the market becomes convinced that Fed hikes will slow the economy. There's even a recent hint of that possibility looking at the action in treasuries since mid-July (the yield on 5-year treasuries has risen faster than yield on 10- and 30-year treasuries.

I am still not convinced the Fed is going to hike this year. Much will depend on retail sales, housing, and jobs.

A good retail sales report will send yields soaring, likely across the board.

Finally, even if economic data is weak, there is a chance yields rise if inflation picks up. Thus, one needs to keep inflation in mind, especially over longer time-frames.

That said, the recent decline in crude, commodities in general, does not lend much credence to the notion the CPI is going to take big leaps forward any time soon.

All things considered, the long end of the curve seems like a reasonable buy here provided one believes as I do, that economic data is unlikely to send the Fed on a huge hiking spree, and that if and when the Fed does react, yields on the long-end of the curve may not rise as everyone seems to expect.

Risks are strong economic data, inflation, and a bond-yield hike-tantrum even if economic data is weak. Fed hikes, in and of themselves, are not the critical factor.

 

Back to homepage

Leave a comment

Leave a comment