The yield on the benchmark 10-year Treasury bond fell as low as 1.976% on Thursday – the lowest yield in recent history.
This is not a surprise. In fact, I predicted this would happen in a column that appeared in Money Morning nearly a year ago.
I'm not bringing this up to brag, but rather as a warning to stay tuned. Because now that we've broken the 2% barrier, it's not difficult to imagine yields as low as 1.5%.
Remember your history.
During the Great Depression U.S. bonds actually traded at a negative yield as investors paid the government to keep their money. The idea was that they could get their money back from the government, but by leaving it in a bank or corporate bond they risked losing everything.
And that speaks to the core of what's rattled the markets recently.
U.S. Federal Reserve Chairman Ben S. Bernanke and our leaders continue to believe this crisis is all about liquidity, which is how they are trying to fight it. The markets, on the other hand, have figured out what I said when it started – that this is really about solvency.
There's a big difference and investors are beginning to worry about the return of their money rather than the return on their money. That's why they're running straight to U.S. Treasuries despite our nation's debt, persistent budget deficits, slowing economic growth, and near total lack of adult supervision in Washington.
So do you buy bonds at this stage?
I think not. The trade is overdone and if you are not in it already, you've probably missed the boat. But, you have arrived on the dock at a most opportune time.
Eventually, there will be higher rates. It doesn't matter how, or even why. Just that there will be.
So buy into the panic quite literally with ProFunds Rising Rates Opportunity Investment Fund (MUTF: RRPIX).
It's a specialized inverse fund that will appreciate significantly when the bond markets eventually reverse course, rates rise and confidence returns.
News and Related Story Links:
- Money Morning:
Why Oil Prices Won't Stay Down For Long - Money Morning:
Lack of Panic Suggests More Market Downside to Come – And Buying Opportunities After That - Money Morning:
A Potential "Big Trade" That Will Put George Soros to Shame - Money Morning:
Three Ways to Slash Your Risk Despite the Negative Investing Outlook - Money Morning:
The Debt-Ceiling Debacle: Three Investments to Make Before Washington Disfigures Your Portfolio
Join the conversation. Click here to jump to comments…
About the Author
Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs High Velocity Profits, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.
Yeah, thanks. A historic opportunity most will ignore I'm guessing.
Any thoughts on TBT & TBF as alternatives?
And, are you suggesting a fairly firm entry point of 1.5% on the 10?