Despite the recent dip in the 10-year Treasury note yield back below 3%, don’t count on it staying there. Lately, it seems, the only thing keeping the rate below that level is some sort of international crisis – Italy, North Korea, trade wars, etc. But the basic fundamentals determining that rate – economic growth and supply and demand, in other words – are calling for even higher rates, well above 3%.
On the supply side, more Treasury debt is coming to market all the time, like an incoming tide in the Pacific Ocean. On the demand side, there are fewer buyers – and I mean big buyers. More about that in a minute. At the same time, the economy is growing stronger, which by itself is going to put upward pressure on rates.
In other words, if you’re betting that the 10-year yield is going lower, or will stay around or below 3%, you’re really only holding it as a safe haven. Nothing wrong with that, lots of investors do that. But if you’re hoping to profit when something in the world goes wrong, you may be playing a losing game.
First the economy. Last week on CNBC’s Squawk Box, the gold dust twins, Warren Buffett and Jamie Dimon, tried to outdo themselves in how great the U.S. economy is performing. Continue reading "Don't Bet On Crises To Keep Bond Rates Lower"