One of my favorite sections of Barron’s each week is the Review/Preview — including a weekly question where they ask “They Said What?” Its a weekly must read.

This week, they asked the loaded Is the Rally in Treasury Bonds Over?

Here are the answers:

David Goldman
“There has been a near-perfect inverse correlation between commodities and term yields, and that shows that the Treasury market is starting to worry about inflation, as well it should. The big commodity-price recovery is bad for bonds. Asian demand will lift commodity prices, so bonds will underperform.”


Jim O’Sullivan
Economist, MarketWatch forecaster of the year, 2011
“It’s hard to get too bearish on bond yields near term, but chances are yields will be up more than down in coming months, if the economy grows modestly.”


David Rosenberg
Chief economist and strategist, Gluskin Sheff
“No. By the time it’s over, the yield curve will have mean-reverted to 200 basis points from today’s 275 basis-point gap. Since the Fed will keep short rates at zero through 2014, the inevitable flattening of the curve will occur via much lower long-term yields.”


Jason Hsu
Chief Investment Officer, Research Affiliates
“It’s anyone’s guess whether Treasuries will move up or down in the next six to 12 months. But the secular yield decline has probably reached its bottom.”

Fascinating stuff.


They Said What? U.S. Bonds
Barron’s January 28, 2012

Category: Fixed Income/Interest Rates, Investing

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12 Responses to “Is the Rally in Treasury Bonds Over?”

  1. jmacdon says:

    I am always confused by the discussion of US bond yields. My understanding is that US bond yields are what the Fed says they will be. Since the Fed has stated unequivocally that the short term rate will remain at the zero bound until 2014, and the Fed is actively crushing yield on long bonds with Operation Twist, how, pray tell, will yields do anything but stay low or go lower?

  2. Frilton Miedman says:

    One of the Golden rules of investment/trading – You can’t fight the Fed.

  3. MidlifeNocrisis says:

    Yeah…….. this is nothing more than a “guess” but I am betting that yields go lower during the next 12 months.

  4. mark says:

    Using 1990′s Japan or 1930′s US as a model one would say that the low in long yields will occur about 10 yrs after the start of the crisis. As for the US today, the question then becomes when did the crisis begin – 2001 or 2008? Since the collapse of the dotcom bubble in 2001 did not lead to a financial crisis, I’m going with Rosenberg on this and estimating that we have several more years to go before the low in long term treasury yields is reached.

    But of course as Mr. Hsu says it is anyone’s guess. (Do people really get paid to say things like that?)

  5. RW says:

    With the 10-year TIPS at a negative .46% yield (and the 10-year Treasury at 1.85%) and the short-term nominal Treasury yield firmly pressed against the zero boundary I’ve become fairly persuaded that, even with QE holding back the tide, the Fed would completely run out of room to maneuver were it not for the overwhelming need for safe assets as savings or as collateral in a global market that most participants still see as very risky.

    When a majority of participants are willing to take more risk on then a persistent YoY rise in yields will occur; not before I think.

    Until then it’s worth remembering that there is no zero boundary for real yields.

  6. It is curious that only 1, of the 4, actually, answered the Q:

    though, for those ‘thinking’ “Higher Rates”..I’ll ask “Who can afford them?” or, differently, “Given a higher ‘Rate Structure’, Who’ll ‘Default’ first? (second? third? fourth? …)”

    BR posted a Chart, recently, ~(222 years of LT-i-Rates)..

    people may do well to reflect the ‘Post-WW II’-period..(High Debt levels with, corresponding, Low Interest rates)

    the FedRes is in a ‘Box Canyon’ (there’s no ‘going back’–there’s no ‘soaking up of the $Trillions of ‘QE’)

    “Low Rates, (or/’til it) Bust!”

    YOMP (Your Orbit may Perturb)

  7. gordo365 says:

    Don’t forget wave after wave or retiring baby boomers – coming to a beach near you for the next 10 years – moving out of equities and into bonds/treasuries/tips/munis – because they are safe.

    Could have more buyers than sellers for a LONG TIME…

  8. theexpertisin says:

    Short term Fed rates are almost equivalent to cash. Who wants to go long term (or even intermediate term) with treasury printing presses running 24/7?

    The retail investor is being coerced into chasing speculative yields. Retirees who depended upon a fair rate of return for loaning the government money are screwed.There is a price to be paid for government financial mistakes and, then, control – and the saving class has been selected to be thrown under the bus.

    Must be that focus groups polled by those making our country’s policy are like the majority of Americans – living beyond their means and intent on doing more of the same.

  9. mark says:

    One can see the flattening of which Rosenberg speaks in the yield curve today. Definitely something to keep an eye on as bonds have been the better leading indicator.

  10. toddtdf says:

    I was looking at implied forward rates the other day, and comparing them to the Fed’s long-term estimate of 4.25%.

    The implied forward rate between 10 and 30 years, is 3.54%. Should these two be comparable to each other? It seems to me that the market is more bearish than the Fed. If the markets trusted the Fed outlook, I think this forward rate would be closer to 4%. I’m not making a prediction, just an observation.

    One thing I will note is that with a 12-month selling at about 0.1% interest, and the 10-year forward rate at around 3.2%, the market is expecting the 10-year yield to increase by a little over 0.3% over the next 12 months (i.e 1.83% will move to around 2.15%). In two-years, this is expected to go up to around 2.45-2.5%.

  11. Futuredome says:

    It won’t be over to the “trap” is broken. When are people going to “get” this. The treasury bond boom is because of the liquidity trap that started in 2001 and escalated in 2008. It is all about the trap.

  12. Futuredome says:

    “The retail investor is being coerced into chasing speculative yields. Retirees who depended upon a fair rate of return for loaning the government money are screwed.There is a price to be paid for government financial mistakes and, then, control – and the saving class has been selected to be thrown under the bus”

    Wrong on accounts. The “Savings” class has been living beyond their means and stealing wealth from the middle class and poor which caused the debt bubble in the first place.

    Your whining about “mistakes” is a mistake.