It’s rare that I find US 10-year bonds the most interesting thing to talk about in my Closing Bell video.
But as the ASX 200 continues to tread water, bonds have been sticking out to me recently.
The huge bull market in everything that we witnessed over the past few decades was driven by the generation-long bull market in US bonds.
Rates kept falling lower and lower after each rate rising cycle ended.
The jump in US 10-year bond yields over the past year is noteworthy because it’s the first time in over four decades that the yield jumped above the highest yield in the previous cycle.
That hints that we may be in the early stages of a very big picture change in trend from down to up for bond yields.
Even if that is what is occurring, there can be short-term bull and bear markets in bond yields along the way that can last for multiple years.
There are some early signs that we’re getting close to bond yields topping out, but I need to see a few boxes ticked along the way before I plunge into bonds as a solid hedge on stocks going forward.
We’re already seeing signs that the US job market is starting to soften. Unemployment figures released overnight (I am writing this on Friday, 1 September), may give us a clearer indication on that front.
If we see further deterioration in the US job market, bonds will start to rally and there’s a chance the high for this cycle is in.
Whether stocks rally with bonds or end up turning down due to weak economic conditions is up for debate.
But if I get a clear signal from here that the bond rally is on, I think bonds could be a perfect hedge for your stock portfolio at a time of heightened risk.
In today’s Closing Bell video, I set out exactly what I need to see from here to become bullish on bonds, using four decades of data.
If you’re exposed to stocks and have plenty of money in cash due to the tough market conditions, it will be worth your while to consider what may be coming in bond land.
Until next week,
 |
Murray Dawes,
Editor, Money Weekend
