We live in a time where every little market moves needs to be explained by something. I guess it’s the Twitter effect and the short attention spans we all have now. I don’t know. So lots of people seem to be freaking out about the recent rise in t-bond yields and why it might be occurring. The Economist magazine has some potential reasons:
“1. Bond yields become artificially low earlier this year (one estimate was that 50% of the world’s government bonds, by value, traded on a yield of less than 1%) are are now returning to more normal levels. Implications; move along, nothing to see here.
2. The rally in equities is indicating that markets/sentiment is at long last returning to normal after the crisis and bonds are losing their safe haven appeal. Implication; fill your boots with equities and sell your bonds as fast as possible as the trend will continue.
3. Hints from the Fed that it will taper QE later this year is causing investors to worry that bonds will lose their crucial support. Implication: mixed. It might mean the sell-off will continue or it might prove to be a self-limiting trend. the Fed may not stop QE if bond yields rise too fast. Economic data are not that great.”
It’s probably a bit of all three. But more importantly, I want to highlight that there really hasn’t been much of a move at all unless you’re focused on really short gyrations. For instance, if we just look at the 50 day moving average of the ten year yield you can see that we’re still well below the levels from 2011 or 2012. And I think that’s an important way to look at a LONG bond. Sometimes its near-term gyrations don’t have a sensible reason behind them. Or, more importantly, if you look closely, yields haven’t actually moved as much as you think and we’re all just obsessing over near-term moves inside of MUCH longer trends.