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10-year Treasury yield wants 3%

  • It's thin trading conditions, but the 10-year Treasury yield jumps 9 bps all of a sudden to 2.86%, touching a new 2-plus-year high. This despite weaker-than-expected consumer and housing data this morning.
  • TLT -0.8%, TBT +1.7%.
  • The move is taking a toll on stocks, where the S&P (SPY -0.4%) has slipped more than half a percent off the session high.
  • The mortgage REITs (REM -1.7%), (MORT -1.5%), (MORL -3.5%) quickly react to the downside. Leading are: Armour (ARR -2.9%), CYS (CYS -4.2%), Javelin (JMI -3.5%), Hatteras (HTS -2.3%), (MFA -2.6%), Annaly (NLY -1.9%), American Capital (AGNC -1.8%), Dynex (DX -1.4%).
Comments (42)
  • Win....
    16 Aug 2013, 01:32 PM Reply Like
  • At what yield will people start commenting that bonds compete with stocks?
    16 Aug 2013, 01:33 PM Reply Like
  • 5%
    16 Aug 2013, 02:39 PM Reply Like
  • I was thinking 5% or greater also, although I have no real data for backing up that number. Thinking that KO and XOM are near that yield right now, and that their yields (on current cost) will be 6-7% in 10 years based on the 8-10% annual dividend growth they've displayed in recent years. Probably some capital appreciation along the way, also.
    16 Aug 2013, 02:55 PM Reply Like
  • ko and xom are both yielding 2.8% right now
    16 Aug 2013, 03:02 PM Reply Like
  • That's what I meant - same as 10-yr.right now. Sorry if that wasn't clear. My point is that they most likely won't stay at 2.8% for 10 yrs. for today's buyers. The income produced will grow over the years as dividends increase. So, today's XOM/KO income for the same investment $ is equal with 10-yr right now, but it won't stay that way, hence the 5% comment. Hope that's a little more clear.
    16 Aug 2013, 03:32 PM Reply Like
  • Right,I guess I should have specified. I've been watching TLT which is comprised of 20+ yr Tbonds.
    16 Aug 2013, 03:54 PM Reply Like
  • At what yield will people admit that America and Japan cant pay back their debt obligations?
    16 Aug 2013, 02:10 PM Reply Like
  • Well, from what I've heard, as long as the economy grows faster than the debt the US never actually has to pay it back. But can the economy grow faster than the debt? That's the real question.
    16 Aug 2013, 02:27 PM Reply Like
  • Sovereign countries that can print their own currency can ALWAYS pay back their debt.
    16 Aug 2013, 04:53 PM Reply Like
  • Do you think that corporations pay off their debt obligations? No, they roll them over.


    There is no reason for either the States or Japan to pay their debt.
    16 Aug 2013, 04:54 PM Reply Like
  • But what about the children! The Children! Shouldn't we leave no debt load for the next generation?


    We should run the Govt like it is a household.
    16 Aug 2013, 04:59 PM Reply Like
  • Households have mortgages... As we know, there's the debt, and then there's the deficit. I don't know if the U.S. has to pay down all its debt, but adding to it every year sure isn't helping!
    17 Aug 2013, 07:01 AM Reply Like
  • The U.S. is spending 7% into deficit in order to achieve 2% growth. Japan is spending 9.5% into debt in order to achieve 3% growth. It wont work out.
    17 Aug 2013, 07:57 AM Reply Like
  • Nobody talking about the interest on the debt? Leaves a considerable dent in the budget, I would think. Re "print more money" there is already considerable pressure to taper QE.
    17 Aug 2013, 10:54 AM Reply Like
  • The US deficit has fallen 33% so far this year. As the economy accelerates, and it will, the deficit will fall further.


    What you fail to mention is that the US pays virtually nothing to finance its debt. The real interest rate on most US government is negative.


    And the US did not expand the deficit to achieve greater growth. It was just the opposite. The US deficit expanded due to lower growth.


    I have noticed you have a tendency to ask loaded questions. Questions presupposing controversial assumptions.


    You just asked how can the US and Japan pay off their debt. The hidden assumption is that they have to pay off their debts and become debt free. And that assumption is false.
    17 Aug 2013, 02:03 PM Reply Like
  • Problem is that the economy grows for 18 years (the business cycle growth period) and then deflates for 18 years. People load up on debt in the latter half of the growth cycle, believing it will last for ever. As such, the economy CANNOT outgrow debt IF central banks don't let higher interest regulate debt growth.


    All these cycles are supposd to work together. Lower rates to spur growth in the growth seasons (1911-1929; 1947-1965; 1983-2001..) and then raise rates to deflate debt growth so that debt growth does not swamp the economy.


    The idea that economies can grow for ever with clever monetary policies is ludicrous. Show me anything in nature that exhibits perpetual growth...except cancer cells. We all know where that leads.
    17 Aug 2013, 02:39 PM Reply Like
  • A woman's scorn. They are never happy.
    17 Aug 2013, 08:08 PM Reply Like
  • "Confidence" is beginning to enter into the equation. Spending is still out of control and the strength of future economic growth is questioned. Half the country thinks we have fools running the country. In reality, nobody knows what the consequences will be - intended or unintended. Place your bets and hang on !!
    17 Aug 2013, 09:02 PM Reply Like
  • Silly me, Michael. I see human civilization has progressed forever. Didn't know that was unnatural and cancerous.
    17 Aug 2013, 09:03 PM Reply Like
  • Learning anything in regard to the Fed not being able to control rates, Macro?
    18 Aug 2013, 11:35 AM Reply Like
  • Which rates are we talking about, Frac? The ones that the Fed is jawboning up?
    18 Aug 2013, 12:20 PM Reply Like
  • They dont even have the intentions to do so.
    16 Aug 2013, 02:18 PM Reply Like
  • I think this afternoons sell off is from the Larry Summers rumors. the mistake people are making is that the market is already tapering. The fed's 45Bn in treasuries on a monthly basis is tiny compared to what actually trades in the cash/ futures markets. Over 100B in 10yr futures traded today. 35B in the long end.
    16 Aug 2013, 03:11 PM Reply Like
  • Fed doesn't need to actually pull support for market participants to react.The 10 yr has doubled from its summer of 12 all time low That Feds $45B represents around 75% of the new US treasuries issued each month(after subtracting the ones used to pay off maturing debt each month).Without that support rates rise making all that debt out there worth a lot less.
    17 Aug 2013, 02:15 AM Reply Like
    On August 16, 2013, we announced that, pursuant to a Facility Agreement (the “Facility Agreement”) dated July 1, 2013 between Deerfield Private Design Fund II, L.P. and Deerfield Private Design International II, L.P. (collectively, “Deerfield”) and MannKind Corporation (“MannKind”), the conditions that obligate Deerfield to purchase the second $40 million tranche of 9.75% senior secured convertible notes (the “Convertible Notes”) have been satisfied. The second tranche of Convertible Notes was subject to our receipt of Phase 3 data from studies 171 and 175 that met the primary efficacy endpoints of these studies and did not show any adverse safety issue that would reasonably be expected to prevent approval of AFREZZA. The Facility Agreement provides that Deerfield is obligated, subject to specified conditions, to purchase up to four equal tranches of Convertible Notes for total gross proceeds of up to $160 million. The closing of the second tranche is expected to occur no later than September 6, 2013.
    16 Aug 2013, 04:37 PM Reply Like
  • Remember tax advantages with bonds as well,
    16 Aug 2013, 09:31 PM Reply Like
  • there are tax advantages with qualified dividends from stocks
    19 Aug 2013, 01:58 PM Reply Like
  • Does anyone think the increase in rates is because of an increased rate of default risk? I think so!!! BUY STOCKS!!
    16 Aug 2013, 10:43 PM Reply Like
  • 08 was a TBTF crisis not an GDP one. As rates rise TBTF leverage and swaps market liquidity(or lack of) will determine the outcome not consumer spending
    17 Aug 2013, 01:57 AM Reply Like
  • GDP is a foolish indicator for one to stake one's life on. GDP measures spending. But, at a certain level, debt-spending becomes a negative, even though it adds to GDP. We have politicians who are encouraged to spend money they don't have because rising GDP means they are doing a good job. Time to wake up.
    17 Aug 2013, 02:39 PM Reply Like
  • Looks like the bond bubble has deflated a bit ... not much really. The FED is starting to talk about untapering the taper.


    ''Federal Reserve Chairman Ben Bernanke may delay his plan to taper bond purchases past September, as investors expect, because of this week's surge in interest rates, according to UBS.''


    The thing is that the biggest problem for the FED would be if they lose control over the bond market. This is what is happening now. Can they get it back? Maybe but eventually they will totally lose control over bond prices. Bond prices are dropping even with the FED buying $85 billion per month ... wow.
    17 Aug 2013, 02:53 AM Reply Like
  • I didn't know the Fed controlled the entire bond market...
    17 Aug 2013, 07:02 AM Reply Like
  • Can't understanding "tapering" from $85 Billion a month to $65 Billion a month, but just talking about it for a couple of years. Why not a gradual taper of say, $2 Billion a month, every month? Just to reduce the shock factor.
    17 Aug 2013, 10:58 AM Reply Like
  • There is no rule or limit of how fast or how much higher it could go; it is a market economy; so-called free enterprise! Only the D.C. Fools would believe that they could manipulate the economy!
    17 Aug 2013, 10:08 AM Reply Like
  • Take a look at the following article on Zerohedge.


    Looks like the treasuries mkt took a tumble widening out another 5 bps or so around 12:45 p.m. EST which coincided with a twit by Bill Gross that some interpreted as Pimco dumping its position.

    17 Aug 2013, 10:10 AM Reply Like
  • With current S&P 500 P/E of 18 with interest rate of 2.8%. If the Ten Yr bill rate increases by 1% to 3.8%, the S&P P/E ratio would go down to 17 - a decrease of average share prices by 5%. So the market can fell by 5% on an increase of TB yield by 1%.


    This answeres to PalmDesertRat querry
    17 Aug 2013, 01:15 PM Reply Like
  • Sorry,that doesn't answer my question. maybe I didn't ask it correctly.


    If interest rates continue to rise,eventually some people are going to take notice and say: hey, why should I continue taking equity risk when I can earn x% on bonds.


    My question is: what number is x? in the opinion of the readers.
    17 Aug 2013, 01:45 PM Reply Like
  • Lets say the 10yr Treasury goes to 4%. If you buy it based on the yield, and then yields go to 5% - you will lose 10% right away. So it is not risk free. in fact , bonds can hand you big losses if yields spike up. So its not just the level of yields but your opinion on the future yields that matters.
    It ultimately depends on whether yields are going up because of robust real growth .. or inflation. Certain types of stocks may give some protection against inflation - hard assets ( oil etc), high fixed cost/low variable cost businesses ( cigarettes etc.).
    Personally - I feel its too early to start getting excited about getting into bonds - we may have years of rising yields /falling prices given the historical low point we are starting from.
    17 Aug 2013, 04:33 PM Reply Like
  • Palm- Maybe another point to think about. When a given person is willing to earn x% on bonds as mentioned above could also be largely influenced by the level of the equities markets, including say a measure of SP500 yield, as just an example of a benchmark. I think especially when you are talking about the 5-10 year portion of the curve. With higher rising rates, you could see increased buying in the closer dated in this market. Maybe an equity correction changes things considerably, and makes the bonds less attractive even at higher rates than current.
    18 Aug 2013, 11:00 AM Reply Like
  • When will investors come to see bonds equal the investment potential of equities? Is a 5% yield on them the magic number to shift capital flows? My answer is: HOPEFULLY NEVER!
    Over time, bonds have SELDOM EVER given an investor an edge over sound equity investing. Note I say "over time." Yes, there have been instances when, if an investor used the right kind of bond and was fortunate enough to get in at an opportune moment (just before a sustained drop in rates - - not an increase in them), then the bond positions were the place to be. Witness huge returns an investor in zero-coupn Treasury bonds (20 to 30 year maturities) made from roughly 1989 through 1999. I have long ago lost all the data I had on that - data regarding actual real-world transactions made by my clients - but they were astounding. We were buying 30-year maturities at prices around $60 and saw them skyrocket to levels approaching $200 in just a very few years. Sometimes a lot quicker.
    But those instances are far and few between. Usually you get the coupon and nothing more. Along the road to maturity you have to suffer through periods of somethmes serious price declines when interest rates move higher. I believe it was 1992 when the Fed raised short rates SIX TIMES in one year! Long Tresauries were hammered to the tune of 30 - 40% market value declines. The "Orphans and Old Ladies" who had been encourged to own these things as being "totally safe" due to the government backing were knashing teeth and pulling hair (if they had any left to pull) during those times. And if they needed some capital to pay for medical or other large and unexpected expense, well, they had to take the hit upon sale. I wish all of you readers could have been on the phone with me in '92 and '93 when they called in to make a forced sale and asked me to explain to them why and how all this had happened to a "government insured and guaranteed" investment. I was glad that it wasn't me who had sold them those critters - but not at all happy in trying to give them the whole story which the broker that placed them in their account before I had it had failed to relate. An "inconvienant truth" so to speak.
    Here's the bottom line: Bonds are, at the end of the day, legal confiscation of capital. That's right - legal confiscation by the issuer, governmental or otherwise. How so? Easy to understand.
    Just invest $50,000 in, say, a 20-year Treasury today at around 2.25% That's all you'll ever get: 2.25% or whatever. Wait out the 20 years, enduring the declines you'll see on your statements without panic or fear when rates go through a normal cyclial rising-rate period of time. Then, Glory be to the gods of investing, the 20 years pass and you finally get your $50,000 back. But not really. When inflation is factored in to that nominal sum of $50,000, and the purchasing power of it is considerd vs, what it was 20 years before, you find out just what level of confiscation has occured. Can't predict it - can guess, sure, but too many variables to be accurate - but rest assured you will pay the piper on that day. Legal confiscation through inflation and erosion of purchasing power. Sound like a good and sound investment strategy to you? I hope not.
    Think of bond investing in this manner: think of it as you going out to find a "job" for your money. You sit with an "employer" (the issuer) and ask what his offer to you is. You're thinking of a "career" with the firm of a 20 to 30 year duration. The "employer" tells you that he is prepared to offer you a very attractive current salary when compared to other jobs available. But he also adds that you must understand that there will NEVER be a bonus of any kind nor any raise in that starting base salary. And if you become unhappy in your position and want to leave the firm there may be a "clawback" of sorts that you will have to pay to be allowed to leave (current market price of the bond vs. the face value you paid.) There is also some small chance you'll get a bonus when you leave (current value above face if rates have declined) but that is pretty limited.
    Now, I ask you - if this was the job offer on the table being presented to you as real employee, would you take it? No chance for salary increases, possibility of loss if you leave the firm early, no bonus awards for outstanding performance. And if the firm ever fails, and the goveernment or an agency isn't insuring your position, you may have to give back to the "company" everything you ever earned and more (bond value going to zero in event of bankruptcy). You want that job. I sure don't!
    When are bonds worthwhile? When you need a very short-term holding pool for money that you know or believe will be needed soon for other purposes. I'm talking 3 year maturity at most. Use the simplest of simple vehicles, CD's. Ladder them in 1-year increments if you are looking at the 3-year holding period to start. Use 1 year CD's for lesser periods. That's it. You'll be safe, get a market rate of return in general, have liquidity, and will never open your brokerage statement and see a crushing decline in value on that part of your portfolio. Or, if you have a known expense coming at you in the distant future and want to guarantee that the funds needed will be there when that day arrives, buy zero coupn Treasuries to match that maturity date. Then just wait it out - paying the income tax on the phantom income along the way, of course. Having to do that isn't as bad as you might think. At maturity, you colect the full value and don't have a big tax bill to pay the next April. Prepaid, so to speak.
    This is what I learned during my 20 years as a Financial Advisor working with retail clients just like many of you. Real world stuff, not academic exercises in number-crunching and hypothetical returns. You'd be wise, in my opinion, to carefully consider these thoughts. Even Bill Gross of Pimco, considered by many to be the best of the best in the Bond world, has difficulity achieving a 10 - 12% yearly annual rate of return on a bond portfolio. If it's that hard to get S&P-like returns using bonds, what do you think your chances of meeting or besting it is?
    Me, I stick with equities. Carefully considered and with an eye toward having a sustainable, growing dividend income stream (these "employers" give you a small starting salary but also offer raises along the way plus opportunity for bonuses.
    In fairness, I will add this: there is one - and only one - vehicle I have used since the late 80's which has a component of bonds in the portfolio that is designed primarily to give an above average income stream and maintain a relatively stable market valuation across all economic cycles. It is the Franklin Income Fund class A shares, symbol FKINX. Front load, yes (4 1/2% I think). Good income payout, yes (currently about 5.5%, strives to pay around 2& more than current 1 year CD's). Monthly payents, yes. (maintains level, stable payments unless and until market conditions require an adjustment) Easy to reinvest in shares, yes. Easy to sleep with during times of rising rates, yes again.(it's NAV is often referred to as being a "dead mans EKG", 2008 being the only real exception to that idea) I currently do not hold any shares of FKINX but am planning to re-establish a positon before year end 2013..
    17 Aug 2013, 02:38 PM Reply Like
  • If you think US bonds are confiscation, think of all the stupid japanese who are buying long terms bonds at less then 2%, even though their government has told them they are going to inflate like crazy. I know Japanese are nationalistic, but that's just plain idiocy!
    17 Aug 2013, 08:18 PM Reply Like
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