Bonds are supposed to provide your portfolio with protection and balance. Insurance against stock market losses, if you will. But Treasuries are getting trashed now.
Take a look at the MoneyShow Chart of the Day. It shows US Long Bond Futures over the past month. You can see they’ve lost six points in price recently. Since bond yields move in the opposite direction of bond prices, the yield on the 30-year US Treasury has jumped about 30 basis points from its pre-war low. It rose as high as 4.96% on Friday.
Long Bonds on a Long March Lower
Source: TradingView
Several forces are at work, but surging energy prices are the most important. With prices for crude oil, gasoline, diesel, and liquefied natural gas surging, inflation fears are rising fast. And inflation is a killer for bonds, especially longer-term ones.
Meanwhile, central bank expectations are shifting rapidly. Most major central banks have been cutting interest rates recently – and were expected to keep doing so at least a couple more times. But markets are now pricing in no further cuts. In some markets, they’re even pricing in the possibility of inflation-fighting rate HIKES.
Higher yields will filter through to the housing market, slowing buying activity. They’ll also put pressure on corporations and consumers. And if the move doesn’t slow soon, it’ll likely fuel more stock market volatility on top of what we’ve already seen.
