Wednesday, October 27, 2010

End of the Bond Bull Market

Lets take a quick look at the Treasury market over the past 15 years.

Bull run?

Absolutely (i.e. rates have trended down for a long time).

The end of a bull run?

In other words, can you expect capital appreciation to provide returns in excess of the yield? No... so yes, an end of a bull run.

Is Jake an "investor" in Treasuries?

Not at all. I'll detail my current investment strategy another day, but it mainly involves betting against ETF's and ETN's that "attack".


Jake (a patient investor with no specific benchmark or liabilities) believes he can do better waiting for the next opportunity (even if it means speaking in third person under a pseudonym).

So given all of that... longer duration Treasuries are rich... right?

Not necessarily. As I detailed in Yield Wins in the Long Run, a 2.7% 10 year and 4.03% 30 year yield simply means that investors should expect a nominal return of 2.7% and 4.03% for the duration of that type of investment (currently around 8.5 years for a 10 year Treasury and 17 years for a 30 year Treasury). BUT, as described in the posts On the Value of Treasuries and Investing in a Low Return Environment there is a strong possibility (in my opinion) that these yields may simply reflect a period of stagnant growth and disinflation.

So, a good investment? If there is inflation... heck no. Deflation... heck yes.


Uncertainty and until I have some, I'll be yet again be (mainly) sitting on the sideline.

Source: Federal Reserve


  1. What is an ETF that "attacks"?

  2. an ETF that is horrendously structured and will trend towards zero regardless of whether the underlying beta does well or poorly.