Tuesday, August 4, 2009

T-bond yield update

I've been saying for awhile that a 4% yield on 10-year Treasury bonds would be a good indication that the market had come to believe that the economy had exited recession and had entered recovery mode. As the arrow on this chart suggests, I think we are getting very close to that realization. Higher T-bond yields seem inevitable to me, especially now that most signs point to recovery. Higher T-bond yields are a natural part of the recovery process, since they are a sign that investors are less concerned about safety and more concerned about taking risk. Higher T-bond yields so far have coincided with a significant decline in yields on investment grade and high-yield corporate bonds, so borrowing costs for corporate America are declining even as borrowing costs for Treasury are rising.

Full disclosure: I am long TBT and long a 30-year fixed-rate mortgage at the time of this writing.

1 comment:

Public Library said...

And a sign the Fed is too easy, once again. Keep an eye out on this space.

My TIPS, commodities, non$, and EM funds are on fire. If this doesn't seem like a repeat of years past, I don't know what is.