Greetings!
Congratulations on your nice work in carrying bonds instead of stocks in your portfolio! Long bond futures in the US have now rallied more than 12% over the last 4 months. That is great news that I am sad to say comes with a cloudy forecast.
The bond market has rallied more than 10% in a four month period only 14 times since the long bond future was listed on the CBOT in 1977…below is a chart of the performance of bonds in the months following such times in the past.
Not so hotso…
However, take a look at what this has meant for equities in the months following a 10% rally in bond futures.
Now, if you want to get into real statistical anomalies…
The stock market and bond market have only gone in different directions to the tune of 10% over the course of four months on four different occasions, 1/22/88, 10/6/98, 8/14/02, 11/20/08 and just now…
Stocks or bonds?
In the past, the performance of stocks over bonds in the ensuing months was notable with the exception of the 1-6 month period in 2002. On average here is how they stacked up…
Here is a silver lining…This could portend some good news for equities going forward. HOWEVER, bonds, which have paid handsomely, now have the odds stacked increasingly against them, especially if they continue a rally from here.
I like to say “find something you like that has a nice yield and buy it”…
That used to be bonds and it is not any longer. Use a hair trigger on the bond market..if they flinch shoot ‘em.
Because Federal Funds rate is at zero, 2’s are at 0.53%, 10’s are at 2.67% and 30 year bonds are at 3.86%, I feel compelled to remind you…hogs typically get slaughtered. And, I apologize for the porcine preoccupation during Ramadan.
All the best,
Leon
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