bonds

U.S. Treasury Bonds – Last Week’s Big Winner; This Week’s Big Loser

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 U.S. Treasury Bonds turned about face and dropped more than 3% in Monday’s trading. The huge reversal and decline wiped out all of last week’s increase which I referred to in my previous article…

“…the big winner, both relatively speaking (compared to everything else) and in absolute terms. Bond prices began rising sharply as early as Monday afternoon and finished the week with peak prices up 4% around mid-day on Friday.” 

By mid-day Wednesday, U.S. Treasury bonds were down more than 8% from their peak level last Friday. Then, in order to thoroughly confuse everyone, bond prices rallied sharply by more than 3%, closing the trading day with a small gain.

What is going on in the bond market? Before trying to answer that question, let’s look at a chart (bigcharts.marketwatch.com) of TLT (iShares Long-term Treasury Bond ETF)…

The sharp increase in bond prices actually began on Friday, March 28th. The total increase from Friday (28th) to Friday (4th) was more than 5%. If you are the least bit familiar with bond prices, you know that that is a big deal.

Given the panic state of most other markets last week, it seemed reasonable to attribute bond market strength to the oft-cited “flight to safety”. That may be so, but how does one explain such a swift reversal as that which occurred Monday? The question requires more than a superficial answer since stocks, while quite volatile, did not provide any signs that investors were in a rush to get back in the pool.

Then Wednesday happened. With President Trump’s forbearance on implementation of the latest tariffs, everything (stocks, gold and gold stocks, silver, and bonds) went up.

A strong up move in stocks on high volume would be reasonably supportive of arguments that last week’s action in the markets was a one-off and that the flight to safety was over. Stocks did not provide that signal Monday. If investors are now convinced that the ‘all clear” signal has been given, why did bonds suddenly rally today. Are bond investors confidently expecting lower interest rates?

BOND MARKET BACKTALK

Right from the outset of the Fed’s policy change re: interest rates last September, the bond market failed to confirm that rates were headed lower.  Here is a statement from my article Backtalk From The Bond Market published in January 2025…
“U.S. Treasury bond prices have now declined 16% since the Fed announced a reversal in its interest rate policy and the first rate cut last September. The latest weakness comes in the face of a second rate cut, so it begs a repeat of the question I posed last October…
“Why are bond rates rising at the very time the Fed is trying to move interest rates lower?” (Fed Cuts Rates But Bond Rates Are RISING)” 
Funny thing is that bond prices then began rising in mid-January. The correspondingly lower interest rates seemed to put the bond market back in the Fed’s camp. Last week’s strong action was the culmination of three months of higher bond prices. You can see this on the chart below…

After looking further at the chart immediately above, one might conclude that bond prices have peaked on an intermediate basis. That next move lower could come with another broad selloff in stocks and other assets. In that context, maybe today’s reversal to the upside isn’t significant. Time will tell.

Let’s look at one more chart…

The bond market has been declining for five years since 2020. Whether you view the action in the bond market for the past two weeks or for the past few months, in the long-term perspective illustrated in the chart just above, it is difficult to see much that indicates hope for sustaining higher bond prices and correspondingly lower interest rates.

To the contrary, it is a graphic picture of Fed Chair Powell’s long standing proclamation that interest rates will remain higher for longer.

CONCLUSION 

Further declines in stocks might not provide the fuel for higher bond prices. The flight-to-safety argument could be inapplicable.

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED

Bond Investors To The Fed – “Not This Time”

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RE: FED POLICY…

“I think instinctively – I can’t prove this, we’re going to learn about this empirically – but it seems to me that the neutral rate is probably higher than it was during the intra-crisis period. And so, rates will be higher.”  (Jerome Powell, July 2024)

Powell’s comments were from an interview conducted two months prior to the announcement that the Fed Funds target rate was lowered after more than two years of higher interest rates.

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Global Credit Collapse Is Deflationary

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NOTE TO READERS:  “Global Credit Collapse Is Deflationary” was originally published as an exclusive for TalkMarkets on October 29, 2024. I have not changed anything in the article, nor is there any reason to modify or alter what is written below because of U.S. election results.

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Asset Price Crash Dead Ahead

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An All-Asset Price Crash (AAPC) might be the next “Wow! Can you believe it?”

In the meantime, whether it be stocks, bonds, gold, or oil, investors are licking their chops and counting their profits before they are booked. And, they have reason to gloat. Let’s see what all the noise is about.

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Everything Is Going Lower, Including Bonds

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EVERYTHING IS GOING LOWER

Nothing epitomizes cheap money more than the lofty level of bond prices and their corresponding low yields. The old adage of “never chase yield” seems to have been pushed aside in favor of “buy more when the interest rate approaches zero”.

Yield-hungry investors think they are being conservative, though. Some of that reasoning is due to the obvious volatility of the stock market; especially during the first twenty years of this century.

BONDS BIGGER RISK THAN STOCKS

Even before the latest stock market dump, bonds could be considered a bigger risk than stocks. The risk is greater now than it was in 2007-08; and probably more so than at any other time in history.

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Need A Second Opinion?

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DO YOU NEED A SECOND OPINION?

Let’s face it. No one plans financially for disaster. We assume that if we are conscientious, persistent, and long-term oriented, that our plans –  generally speaking – will find fruition.

We carry insurance to protect ourselves against financial loss from events such as death,  major illness, disability, property damage, long-term care, etc.

But what about systemic risk?

How will you survive a complete credit collapse and loss of 50-90 percent of the value of all assets denominated in U.S. dollars? What about a full-scale depression?

When most advisors talk about investing in such a way as to minimize risk and avoid market blowouts, there is an implicit assumption that whatever the situation, it will be temporary; that the financial markets will continue to function.

Maybe that isn’t the case. Wide-scale bankruptcies, bank failures, and interruptions in communication channels could effectively stop markets from functioning at all.

Suppose you have an investment that generates huge profits for you during a stock market collapse; say a short position on some individual stocks or an ETF with a similar strategy.

Because of the leverage involved, if a market decline is steep enough and swift enough, there may not be any traders or other investors with money to whom you can sell your profitable ETFs or from whom you can buy back your existing short positions.

What if the U.S. dollar renews its long-term decline in accelerated fashion? Is runaway inflation a possibility and how would you be affected?

Do you understand the concept of fractional-reserve banking and the danger it presents?

Maybe you don’t own stocks. You might own bonds which provide you with interest income. Or real estate; or gold. Extreme negative market conditions will affect all of these things in ways you probably cannot imagine.

If you are worried or concerned about any of  these things, or just feel the need to be better informed, you could benefit from a personal consultation.

Or, perhaps you are a corporate officer who has employees that would gain from a better understanding of these issues.

Whatever your particular situation, take action today. Send me an email with your concerns and questions. I will get back to you quickly.

Let’s talk…  kwilliams@kelseywilliamsgold.com

Bio: KelseyWilliams

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

 

Federal Reserve And Market Risk

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FEDERAL RESERVE AND MARKET RISK

Analysis and opinions of the financial markets vary depending on who is doing the analyzing. The most critical element that affects the song is the singer.

There is nothing wrong with that. But we should be aware that our own prejudice clouds our perspective. However, there is more that is not so obvious. With that in mind, lets take a look at things.

Today, more than ever before (at least it seems that way), focus is on the Federal Reserve. Even economists and the general public have joined the throngs of interested observers.

Stocks and bonds fell significantly over the past several days, partly in response to statements by Chairman Powell. The Chairman’s remarks indicated the intention of the Fed to continue its push to raise interest rates more aggressively, and without seeming regard to any deleterious effects on the economy and the stock market.

So, we hear criticism that the Fed is guilty of policy error. “The Fed needs to be more accommodative at this time.” Maybe; maybe not.

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