Ac-Cent-Tchu-Ate The Positive

bond yields

10-year US T-bond yields, weekly chart by Steven Sarnoff, h/t

“You’ve got to accentuate the positive
Eliminate the negative
Latch on to the affirmative
Don’t mess with Mister In-Between”
— Music by Harold Arlen, Lyrics by Johnny Mercer (1944)


Throughout the summer and now into fall, the spread of very low and, in several nations, negative yields is a glaring warning sign of danger during these uncertain economic times.

As of 10-04-19, here are select 10-year government bond yields:

Canada          1.23%
United States   1.52

Germany        -0.58%
UK              0.44
France         -0.28
Italy           0.83
Spain           0.12
Netherlands     0.45
Portugal        0.13
Greece          1.32
Switzerland    -0.86

Japan          -0.22%
Australia       0.88
Hong Kong       1.04
Singapore       1.62
South Korea     1.36


Buying a negative yielding sovereign bond is akin to paying a government to hold your money.  You are buying a loss.  Why on earth would anyone do that?  One reason is the Greater Fool Theory on display.

Bond yields are inverse to their price.  Falling bond yields are reflected by rising bond prices.  Those who buy negative yielding bonds do so in the hope that rates will become more negative and that a greater fool will come along and by them at a higher price, thereby generating a profitable trade.

That strategy has been working well, and may continue to do so over the near-term.  Note the parabolic price action depicted by my TLT chart, below.

TLT chart

TLT, longer-term US T-bond price ETF, chart by Steven Sarnoff, h/t

Negative interest rates punish savers.  Governments hope that inhibiting saving will stimulate spending and spur their economies.  Unfortunately, these policies are like pushing on a string.  They beget increasingly radical measures, which are likely to end badly.

The big question is, “When will it end?”

As of Friday’s close, bond prices were still looking higher (rates lower).  The historic low levels the market is eyeing in the 10-year yield are: 1.42% (2019), 1.37% (2012), and 1.31% (from 2016).

In my opinion, this move to extremely low rates is setting up a generational opportunity for traders in bonds.

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Best regards,


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