Bond prices have enjoyed a strong 30 year bull market. As bond prices rise, yields (interest rates) decline. With a 10 year treasury yielding less than the inflation rate, can rates really go much lower? Probably not. But, they can stay low for a long period of time. And as long as the FED is going to keep short term rates at 0%, then longer term rates, like the 10 year Treasury will most likely stay anchored as well.
Here is a chart of the Treasury Bond Price going back to 1978 courtesy of Stockcharts.com. We call this an uptrend. It’s a 45 degree angle going from the bottom left of the chart to the top right.
Here is a chart of mutual fund money flows. The blue bars represent new money into bonds and the green bars represent new money into stocks. Guess where the money has been going over the last 4 years? Yup. into Bonds. We believe that money tends to pile into an asset class near the top. A great example of that below is how in the late nineties stocks were the clear winner. We believe the same is happening today in bonds.
Now, we are not advocating selling bonds. At Parallel, we hold to the belief that typically market tops are rounded and take time to form and market bottoms are V shaped and usually happen quickly. So if we are truly at or near a top in bond prices, it will most likely take a while for a that top to form. It could be months or years. We don’t know as we are not in the habit of predicting the future. Rather, we vigilantly watch and analyze what the market is doing and make our decisions based on the data we are given.