Bonds are Bottoming Out
The floor just gave way underneath bonds, with yields diving into freefall yesterday as investors took refuge in the lower-risk investment. We’re watching an economic tree bend in gale-force trade headwinds, and now the market’s trying to get out of its way in case it’s ripped from its roots — goodbye stocks, hello bonds.
Bonds lock you into fixed income; something investors cling to in times of economic peril. The US government bonds are the flagship bonds, with the government having never defaulted on its fixed obligation to pay you. Many assume it never will! Yesterday morning, investors woke up feeling a sense of dread. Scores of market players jumped into the safe arms of their government as soon as the opening bell rang, the same government embroiled in the trade war that created this frenzy!
President Trump and President Xi are tangoing with trade threats, and their joust is reliant on their respective home economies standing the test of tension. If recession fears become too much, stocks will be abandoned in favor of bonds, like they were for much of yesterday. A real recession would surely bring an early time-out to the trade war, if not a complete end. Peace comes at a hefty price!
The smart money is treading very carefully through the markets this week. Yields from government bonds are squashed under the weight of a fearful crowd, with its desire for fixed income pushing the price of bond funds way up, and out of good value for money territory.
There’s your tale of the tape! If a recession did rear its ugly head, the winners would be those who lose the least. That’s why slightly negative bond yields still fly with investors, and why we could see more of them. It’s been a turbulent week, but the markets look like they’ll make it to the end (touch wood)!
