Treasuries Skyrocket

Today the entire US Treasury yield curve sank below 1% for the first time ever. Recalling that price and yield are inversely related, this corresponds to very high bond prices. GOVT, which holds Treasuries from 1-30 years maturity, is up 8.7% on the year, and VGLT, which holds Treasuries from 10-30 years in maturity, is up 24.7%. Not bad for just a few weeks.

“But wait”, you say, “I’m a long term investor. Stocks for the long term!”. If you bought long term Treasuries at the beginning of the millennium, January 1, 2000, you’ve trounced stocks. Stocks underperformed not only long term Treasuries, but gold as well, as of January 1, 2020, even before the latest rout.

Outlook for the 2020s

Are Treasuries a buy or a sell? Depends on how much you have now. If you’re 100% in Treasuries, they’re a sell. If you have none, they’re probably a buy, especially if you’re a US investor.  

If there’s a lesson here, it’s not that any one asset class is going to outperform in the future.  That past performance is no guarantee of future results is one of investing’s truest truisms.  Safe investing means combining assets with different performance characteristics, so that you’re not ruined by poor performance in any one.  

Markets had a wild year today.  Bonds soared.  Stocks were down around 8%.  Oil prices were down over 25% on news of a price war between Saudi Arabia and Russia in the wake of a collapse in OPEC+ negotiations, which some speculate may have been an indirect assault on the US energy complex.  

This in turn was given a generous share of the credit for the equity rout and bond rally.  I’m skeptical though, since post session futures have reversed part of this move after an administration news conference announcing measures to combat the coronavirus crisis, suggesting that coronavirus fears shouldered the lion’s share of the blame.  If it had really been about plunging oil prices, the obvious cure would have been oil tariffs.  Wouldn’t “Tariff Man” have thought of that?

One thought on “Treasuries Skyrocket

  1. Bill Terrell says:

    Follow-up:
    “[The oil price crash] in turn was given a generous share of the credit for the equity rout and bond rally. I’m skeptical though, since post session futures have reversed part of this move after an administration news conference announcing measures to combat the coronavirus crisis, suggesting that coronavirus fears shouldered the lion’s share of the blame…”

    We’re seeing continued support for this in this evening’s futures trading. WTIC is trading up over 2%, while S&P futures are down over 2%.

    It really is about coronavirus now. That and a financial system whose immune system has been made weak and frail by interest rates held too low too long by a reckless Fed.

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