To recap my previous post, US Treasuries continue to be in the spotlight. Last week, the 10-yr Treasury Bond yield passed 1.7%, levels last seen more than a year ago. As a reminder, it started the year around 0.90% and has nearly doubled in less than three months.
10-year US Treasury Bond Yield (GT10 Govt) 12 month chart
In addition, the Bloomberg Barclays U.S. Long Treasury Return Index fell into “bear market” territory for the first time in almost 40 years. The index has fallen more than 20% since its highest point in March of last year. As a reminder, when an instrument falls more than 20% from peak to trough, it’s considered to be in a bear market.
Bloomberg Barclays U.S. Long Treasury Return Index (LUTLTRUU Index)
With President Biden’s $1.9 trillion stimulus plan, the improving outlook in economic recovery due to the increasing pace of vaccinations, and expectations of higher inflation is driving down bond prices. As bond prices fall, yields rise making them more attractive with the potential to pressure stocks. In particular, high-priced tech stocks that have led the way during the pandemic. The Nasdaq 100 Index posted an all-time-high in February. It then erased its’ gains for the year early in March, falling over 11%. The NASDAQ 100 lost another 3% on last Thursday. Buying the dip has become more challenging as rising yields are making investors nervous.
The main concern with the decline in bonds is the velocity with which it is happening as it adds volatility to the stock market. Many retail investors may not be used to the moves we are starting to see especially as investors new to the market are used to prices only going one way; up.
The coming months will likely prove challenging for the individual investor who might not have a well-defined investment strategy and is used to buying the index or the big tech companies with great results. As volatility increases, the emotional toll of managing one’s portfolio in an unfamiliar environment becomes burdensome. The time may come to look for help in building a broader plan for the future.