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Yields on U.S. government bonds recently spiked upward thanks to the U.S. government pouring tax cuts on the glowing embers of a nascent pick-up in the U.S. economy and a reaffirmation of the Federal Reserve’s intention to proceed with a second round of quantitative easing. Many observers are calling it a key turning point, the beginning of a secular upward trend in interest rates.

It’s perhaps not surprising that Gluskin economist David Rosenberg thinks bond yields will fall back, which would of course deliver price gains to bond holders given the inverse relationship between yields and prices. The noted bear thinks the disinflation and deleveraging trend is still in tact: the current 3.5% yield on 10-year U.S. treasuries historically has only occurred when unemployment was far lower than the current 9.8% and inflation far higher than the current 1%. I have been somewhat partial to this view, myself..

Bespoke Investment Group just published a bunch of charts showing how much U.S. bond ETFs have sold off. They observed:

All of the ETFs — from long-term Treasuries to munis to TIPS to investment-grade corporate bonds — are currently trading two standard deviations or more below their 50-day moving averages.

Has the knife fallen enough for the brave to catch?

Interestingly, Bill Gross has done just that. The chief investment officer at Pacific Investment Management Co. (PIMCO) put $17 million (U.S.) of his own wealth into bond funds over the past week, even as retail investors fled bonds for the first time since December of 2008. He said in October that quantitative easing by the Fed will likely mark the end of the 30-year-long decline in bond yields (conversely, rise in bond prices) but with the 10-year note zooming to a 7-month high in recent weeks, he appears to view that move as too much too soon.

Disclosure: No positions

Source: Catch the Falling Bond Knife?