Banking & Finance

Bond Losses Mounting as DJIA Nears 13,000 Ahead of FOMC

You have been warned about bubbles forming in bonds and in dividend stocks.  So when you get a report out on Gross Domestic Product that is above most expectations it should be of little or no surprise at all that bond prices drop and bond yields rise.  There is also an FOMC meeting on the books for next week.  The question is just how much those bond yields will rise if the U.S. manages to avoid the coming fiscal cliff and skates by narrowly avoiding a recession.  We are seeing a rise in almost every maturity beyond the one-year mark. The price on the iShares Barclays 20+ Year Treasury Bond (NYSEMKT: TLT) is down by 1.5% at $129.04 on the day, while the ProShares UltraShort 20+ Year Treasury (NYSEMKT: TBT) is up 2.7% at $14.76 on the day. Here are the corresponding gains in Treasury yields:

  • The 2 Year yield is 0.24%, up 1 basis point from yesterday. The yield last week was 0.20%.
  • The 3 Year yield is 0.33%, up 3 basis points from yesterday. The yield last week was 0.28%.
  • The 5 Year yield is 0.64%, up 6 basis points from yesterday. The yield last week was 0.57%.
  • The 10 Year yield is 1.51%, up 7 basis points from yesterday. The yield last week was 1.46%.
  • The 30 Year yield on the Long Bond is 2.58%, and that is up 8 basis points from yesterday. The yield last week was 2.54%.

Is this the beginning of the end for bonds?  Probably not.  The headlines from Europe are likely to remain more negative than positive. Still, we are on a day-two stock rally and the DJIA is up over 100 points and within spitting distance of 13,000 (12,992).  The S&P 500 Index (NYSEMKT: DIA) is up 14.6 points at 1,374.60 so far today.

The PIMCO Total Return ETF (NYSEMKT: BOND) is down -0.3% at $107.13 so far today.

JON C. OGG