Tag Archives: bond market
The bond market has been hot as a pistol lately. Since peaking in late June, the yield on the benchmark 10-year Treasury note has plummeted almost 70 basis points, to 4.55% at last night’s close. Meanwhile, the share price of our highly leveraged zero coupon bond fund, American Century Target Maturities 2025, has surged 13%.
Anxiety is building in the bond market — a sure sign that a good buying opportunity isn’t far off.
Traders were greeted this morning with the unpleasant news that import prices shot up 2.3% in September. If that pace kept up for a whole year, we would be looking at a 30% inflation rate in foreign goods. Shivers!
The grim pictures of Hurricane Katrina’s devastation are seared into America’s psyche. And now the gas lines! But have you seen what’s going on the bond market? It’s as if a hurricane blew into the Treasury sector, too — and knocked yields flat.
No, it’s nothing like the good old panics the bond market used to treat us to, back in the 1980s and 1990s. But bond prices have taken a pretty good drubbing over the past four weeks. Even with today’s rally, the price of a long Treasury is about 5% off its February peak. Since early 2000, when the stock market bubble popped, every “correction” of 5% (or more) in bonds has ultimately rewarded investors who had the moxie to buy.
We’re getting the first indications that rising interest rates are starting to crimp America’s borrowing habits. This morning, the Mortgage Bankers Assocation of America reported that its weekly index of mortgage applications for home purchase dipped to 409.6. That’s a cumulative drop of 11% from the peak in early June, and it comes during a week when mortgage rates had actually tailed off a bit. The spike in rates over the past few days will almost certainly continue to drive down next week’s purchase index.
The stock market’s non-stop rally continues to amaze veteran observers, including yours truly. Prices keep going up even on days when bad economic news comes out. How long can this last? For a clue, watch the bond market. From early May until yesterday, bonds cruised along with stocks, even helping to drive stock prices higher (by tempting conservative investors who can’t stomach 3% Treasury yields to purchase dividend-paying equities).