Bond woes eclipsed by stock market gains
It's tough out there for a bond investor, for those who care to follow that market
The ROAR Score stays at 40 this week, sitting at that still-defensive-leaning mark for the third week in a row. So my 2-ETF portfolio remains at 40% SPY, 60% BIL.
TODAY AT 5PM Eastern Time US
ASK ME ANYTHING: what do the charts say now?
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While everyone was following the solar eclipse yesterday, I was naturally thinking about something related to the markets. Specifically, how 2024 is potentially shaping up to be another rough year for long-term bonds. Late last year, the financial market talking heads were out in force, convincing the investing public that they should lock in long-term bond rates before the Fed cut 6 or 7 times this year. Since that was considered by many to be a done deal, it followed that long-term bonds bought in late 2023 would not only provide a nice yield, but also some profits as rates receded.
But someone forgot to ask the inflation lords
And this year, as inflation has remained stubbornly high by recent standards, though very normal by longer-term historical standards, the “buy long bonds” narrative is creating the same rut for investors that it did in 2022, when the 10-year U.S. Treasury rate jumped from 1.5% to 4.0%. When that happens, prices of long-term bonds fall hard.
But since the stock market gets so much more publicity, when rates start to look like they are climbing, it is rarely front page news. Well, it should be. Because this is how it started, and this is how it's going:
The top part of the chart shows how the 10-year bond rate continued all the way up to 5% late last year. Then, a rally brought out the “buy bonds” crowd in force. But as noted above, inflation pressures have not abated, and the mounting U.S. government debt is not helping matters. That has the 10-year back up, and as the lower part of the chart shows, that is once again crushing TLT, the ETF that skyrocketed in volume last year, as investors mistakenly considered it “the bond market.” This is what I mean when I harp on the idea of “risk management.” Many bought into the hype, and are starting to realize that they own some form of “bonds” that act way too much like stocks in a bear market. TLT is down 8% so far this year.
What has really been eclipsed: investment education, the basics. Like how bond markets really work.
This has a lot to do with the fact that for the better part of 15 years, investors didn’t have to learn much about how the bond market works. Because the stock market did all the work for them. I will continue to try to fill in that knowledge gap, albeit without the ability to shout as loudly as the largest media companies, who are likely to rush to educate investors only after much of the damage is done. There’s a difference between being in the business of separating myth from reality, and the other one, which creates the myth to keep eyeballs glued to the message.