Big Bond Sell-Off

By tothetick

Many have been predicting it to happen for ages now, and it’s finally on according to Goldman Sachs. Yields on government bonds have been increasing over the past few weeks and the sale of the century is about to begin. The bond sell-off is here, guys and girls!

It’s better to make a move from long-duration bonds and avoid losses that might be heavy.

10-year bonds have increased by 10% in just the last week and now have stabilized at 2.0745% today. Everything is on the up at the moment. Japanese bonds (JGBs) have taken a hike upwards, hitting the 1% mark. The Bank of Japan had already made the promise that they would do everything in their power to take the necessary action to stabilize the volatility of the bond market. German 10-year bonds have done the same too. 10-year treasury yields in the UK are also predicted to rise by 2.3%.

The advice is: if you are holding too many bonds and that’s long-term bonds then the crunch will come unless you off-load them now.  There needs to be a change of track and tactics right now if you are not going to get caught in that crunch.

Higher yields are the result of pessimistic growth targets in the US and elsewhere, as well as fear that the Federal Reserve will curb asset-purchasing. Finally, Abenomics and Japanese QE methods have had their role to play in the move towards higher yields.

Federal reserve Chairman, Ben Bernanke, freaked economists and traders out last week and caused wary market reactions in the face of the revelations that the Federal Reserve would scale back on the central bank’s monthly $85-billion asset purchases. The suggestion was that it was going to happen as early as June.

This might become reality as consumer confidence in the US is on the up and also house prices are increasing somewhat. Confidence figures in May increased to 76.20% from 69% in April 2013. The Expectations of US citizens increased also from 74.3% last month to 82.4%. It looks like Bernanke will have every reason to curb that asset purchasing. Confidence has never been higher in the past five years. The outlook for the next six months also looks good in terms of consumer confidence (with a rise from 17.2% to 19.2%).

We all knew that printing dollars wasn’t going to be the long-term answer. Now, that prediction is becoming reality. Short-term printing works, keeps you afloat for a bit. Now, the US is ready to sink a bit, maybe. The Federal Reserve is going to have to sell those bonds back and that means bad news for your portfolio. When the Federal Reserve starts that sale, you can bet your bottom dollar (and it may just be the bottom one unless you get out now, and double quick) that prices will plunge and bring you down with it. Poo-poo it if you like. It’ll happen, and you know it, there’s no point sticking your head in the sand.

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