When Is the Right Time to Buy Bonds?

Treasury yields are surging… the U.S., 10-year treasury – a rate which every financial asset is tied to – has ripped back above 4.60%. Credit card rates, home loans, auto loans… you name it… have all increased. The last time UY.S. 10-year yields traded above 4.60% – the S&P 500 was ~20% lower. From mine, the divergence is a head-scratcher… however, what I can say is risk assets have a tougher time advancing when yields push beyond this zone. The question is – is now a good time to increase bond exposure? I think the answer is yes.. and here’s why

What Just Happened?

Only two weeks ago Fed Chair Powell said “the FOMC are not thinking about rate cuts”. And it was premature to conclude with confidence they are at a sufficiently restrictive level. Well forget all that. Powell performed one of the more remarkable pivots ever seen from the Fed. He pivoted 180 degrees from his sentiment barely 14 days ago. Powell is now talking three rate cuts next year and the Fed have essentially “won the battle” over inflation. My take is the Fed is now more concerned about the business cycle; i.e., recession. There is a reason the Fed will cut – and that is the risk of dislocation in the economy (i.e., recession)

Investors Start Weighing the Risks

Investors have hit pause on equities – evaluating a new set of risks. For example, the S&P 500 is now trading close to the same level it was at the end of January. 8 months of gains gone! The world’s largest index is up ~10% year to date… losing 2.4% this week. When you consider the S&P 500 lost ~19% last year…. it has not been a good two years. This post looks at why the outlook has deteriorated with 4 key charts: (i) 10-year yield; (ii) 10-2 yield curve; (iii) VIX; and (iv) gold – which touched $2,000 this week. What does it all mean?

5 Charts to Shape 2023

Inflation, rate hikes, the US dollar and bond yields all shaped how things traded in 2022. What will shape investment strategies and sentiment this year? From mine, look no further than what we see with employment, wage inflation and economic growth. And from there – how this dictates the pace and duration of Fed tightening.

For a full list of posts from 2017…