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Bond Yields Are Too High

|Includes: iShares 20+ Year Treasury Bond ETF (TLT)
The recent sell off in the bond market has lead many to wonder if the bubble that was forming has been deflated or if this is a buying opportunity for investors.

Looking at the daily chart of TLT (iShares Barclays 20+ Year Treasury Bond Fund) we can see that the bond market has been in a decline for the past year:

TLT John Rothe Praxis Fund

However, looking at the weekely chart of TLT, the pattern looks a bit different:

TLT Weekly Praxis Spoke Fund

If the pattern holds, then we should start to see some buyers come back to the bond market.

In addition, the fundamentals for bonds look pretty good:

Currently the 10 year bond yield is approximately 3.5% while inflation is at 0.8% and unemployment is almost 10%. In the past 50 years the yield on bonds has never been this high when compared to today’s inflation and unemployment rates. In the past, when bond yields where at 3.5%, inflation was closer to 1.5% and unemployment was about 6.5%

More likely money is shifting from bonds to equities as the Federal Reserve has hinted that their focus is a strong stock market – not lower bond yields. (however the Feds main tool is to buy US bonds to stimulate the economy). At some point the bond market will snap back quickly as investors realize the Fed will be keeping rates at historic lows for possibly years to come and will continue to stimulate the economy by its continuing purchase of US Treasuries.