The 10-year Treasury yield hit 5.09%. Highest since 2007. You know what else happened in 2007? Nothing important. Just a minor hiccup in the housing market.
Bond investors are calling this an opportunity. They've been sitting in cash earning nothing for years, watching their purchasing power evaporate like spit on a griddle. Now they get to lock in 5% for a decade. Inflation's running higher than that, but sure. Opportunity.
The technical setup here is pristine. Yields go up, bond prices go down. Retail traders see "highest since 2007" and think they're buying the dip. They're not buying the dip. They're buying a 10-year IOU from a government that prints money faster than a teenager prints fake IDs. The chart doesn't care about your feelings. It doesn't care about opportunity.
Borrowers are getting destroyed. Mortgage rates are following yields up like a dog follows its owner. Car loans, home equity lines, corporate debt—all repricing higher. But don't worry, some guy with a Series 7 and a receding hairline says this is actually good for bond investors.
Here's what higher yields mean: you get 5% annually while your principal gets cremated if rates keep climbing. You're catching a falling knife, except the knife is also on fire, and you're catching it with your retirement account.
The last time yields were this high, people were buying CDOs like they were Beanie Babies. That worked out great. This time is definitely different though. This time, investors are making an informed decision to earn 5% on an asset that could drop 20% if the Fed pushes rates to 6%. Math is hard, but losing money is easy.
Bonds are back, baby. Right back to losing you money in real terms while financial advisors call it diversification.
Photo by Tyler Prahm on Unsplash
Leave a Comment