Daily Gains Letter

30-year U.S. bonds


Investor Beware: Bull Market in Bonds May Be Over

By for Daily Gains Letter | May 15, 2013

Bull Market in Bonds May Be OverWhen the financial crisis took grip on the U.S. economy, investors fled the stock market and ran towards bonds—more specifically, high-quality U.S. government bonds. The reason behind this was very simple: they would rather invest their money in something where they knew their capital was safe than in the stock market, which was uncertain at the very best.

As a result, bond prices soared and the yields collapsed. To give you some idea: near the end of July 2012, 30-year U.S. bonds had a yield of less than 2.5%. Prior to the financial crisis, these same U.S. bonds provided investors with a yield above 4.5%.

That was the past. Now, the effects of the financial crisis are going away: the U.S. economy actually seems to be improving, the financial system is in better health, and the employment situation appears much better.

With all these changes occurring in the U.S. economy, investors are asking whether the U.S. bonds market is still a safe place to be.

According to Bill Gross, also referred to as “The Bond King” by the mainstream, the bull market in the U.S. 30-year bond probably ended on April 29. The reason: the yields reached lows and the prices peaked. (Source: Cox, P. and Leondis, A., “Gross Says Bond Bull Market Probably Ended April 29,” Bloomberg, May 10, 2013.)

Keeping this in mind, take a look at the chart below of the yields on U.S. 30-year bonds, paying close attention to the circled area:

30-year bonds

Chart courtesy of www.StockCharts.com

Looking at this chart through technical analysis, the yields of 30-year bonds show an interesting development. Since the beginning of … Read More