Bond Yields Rise To Record Levels This Last Week
This last week the gap between the two year and 10-year U.S. Treasury yields widened to 2.55%, double the median, which is 1.23% and very close to the record high which occurred in February 2010 at 2.93 points. Although the bond market has been in a pretty big slump, the indicators are showing that the yields are nearing their peak, which is excellent news for fixed income investors who stand to lose most significantly if rising yields were in fact a marker for inflation.
Why The Increased Bond Yields?
One of the primary reasons why we are seeing the gap between yields of the 2-year and 10-year treasury rise, is due to a question on when and how significantly the Fed will begin tapering its bond buying program. The Fed’s goal is to keep interest rates for bank loans the same, while cutting back on the bond-buying program that drove bond yields up and interest rates to record low numbers.
The Bond Yield Curve Will Slow Down Through Second Quarter Next Year
For those who were watching they yield climb with some apprehension, bond strategists are fairly confident that the yields for 10-year treasuries will slow significantly with the rates only hitting 3.05% by the end of second quarter 2014. The same strategists have confirmed that they do not think that the higher yields are either bullish or concerning for the bond market and for inflation markers. Wan-Chong Kung, fund manager at Nuveen Asset Management made the comment: “It’s an artifact of the very accommodative monetary policy we continue to operate under.”
Bonds Rallied Even As Yields Reached The Years High
In spite of the higher yields this last week, bonds rallied as the housing market showed some decline and volatility in the world drove investors back into safe haven investments. Additionally, with Bernanke’s commitments to keep overnight lending interest rates near zero, it puts an anchor on 2-year treasury yields, which in turn reigns in the 10-year treasuries.
For more information on how the higher bond yields could impact your bond investments, of for information on how to invest in today’s current financial environment, speak to a Redhawk Wealth Advisor near you today.