What is the Bond Market Telling Us

The bond market is the Truth

Bonds are mostly seen as boring. My grandparents invested in bonds, so they had to be concentrative and…boring. Yet, bonds are the foundation of global markets. They represent the building of a company’s, municipality or country’s foundation. The US uses the Treasury to fund the daily on goings of our country. A municipality will issue bonds to build infrastructure, roads, bridges, etc.. So when we see bond yields rise (yields rise, the value of the bond go down), I get concerned.

This is the Yield Curve. It is a comparison between the 10yr Treasury and the 2yr Treasury. The the Yield Curve inverts, no good. Since February 2021, Y.C. was at 1.58 to today its at -0.91. The Yield Curve inverting represents a recession is on its way or we are in one. With the Federal Reserve raising Fed Funds Rates, which drives the 2yr Treasury Yield higher, investors exit the shorter end of the curve and buy the longer duration bonds, 10yr Treasury.

Today we are at a point that you have to ask yourself, if the Fed is going to continue to raise rates, which benefits Money Market funds, why would I risk principle value by staying bonds? Why not just move my money to Money Market fund and have zero volatility of my principle?

As of February 6, 2023 there is $1.2 trillion in Retail Money Market Funds. You can see the move from equity and bonds markets since May 2022 is pretty significant.

Housing

Even though every real estate agent in my area tells me the housing market is solid in my area, they keep lowering prices and homes for sale stay on the market longer and longer.

30yr Mortgage rates continue to move higher because the underlying benchmark, 10yr Treasury inches higher. As long as the Fed raises Fed Funds rates, financing a home purchase will continue to get more expensive.

My Allocation Idea