TLT appears to be bottoming/finding support. This also suggests that rates may be finding a top soon. But I do not expect stocks to reap the rewards thereof, as I expect Bonds to get bought up as a form of safety very very soon.
Why would the rates already be topped out when interest just started rising and inflation is still out of control?
logica
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@jeffmthompson, because the long end of the curve is not controlled by the Fed. They are largely controlled by supply and demand. If people cannot afford the higher mortgage rates for example...what has to happen to the rates to avoid a housing crash (or even if the housing crashes)?
"Mortgage applications in the US fell 6.3% in the week ended April 1st, pushing the index to its lowest since March of 2019, as interest rates continue to march higher. It follows a 6.8% slump in the previous period and marks the 4th straight week of falls. The refinancing index sank 9.9% making now only 38.8% of all mortgage application activity, down from about 60% a year ago and the smallest share since May 2019. Also, the applications to purchase a home went down 3.4%. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.9% from 4.8%, the highest since December of 2018. “The elevated average purchase loan size, and steeper 8% drop in FHA purchase applications, are both indicative of first-time buyers being disproportionately impacted by supply and affordability challenges”, said Joel Kan, an MBA economist."
jeffmthompson
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@logica, If we are strictly talking about treasury bonds its a pretty simple thing to understand. Higher yields = lower bond prices. We know we are nowhere close to putting a dent in inflation. We know the bond yields are only going to rise. So why would anyone be looking for a long position here or a swing trade? This should only be shorted. Every time the economy is in trouble (March 2020) interest rates hit the floor and bond prices sky rocket. But, the after effects cause out of control inflation (now). So what needs to happen to get inflation under control? Bond prices need to drop and provide higher yields. By buying this ETF, you are essentially betting on lower interest rates which makes zero sense as we are doing the exact opposite.
logica
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@jeffmthompson, the second largest reading of inflation in the last 20 years was July 2008. What happened a few months later?
What needs to happen now is what happened then, the housing and stock market needs to crash to bring inflation down. The GFC fixed the inflation rate in a few months flat:
fred.stlouisfed.org/graph/?g=sL9U TLT did quite well during that time. I'm not saying I'm right, but I am saying there exists historical precedent that TLT goes up when inflation causes a reduction in asset prices. This is based in reality. Again, nobody can predict the future, not me, not you, but you also can't say the price of TLT is lower 1 year after high inflation reading because that's also not true.
History doesn't repeat...but often rhymes...
jeffmthompson
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@logica, I mean thats kind of what i have been saying man. Lol Look at the price of this index post 2008. This is the time to short it.
@logica, You picked the time range when interest was lowered which sends bond prices soaring. Look what happened afterwards when interest rates were raised. Crash! How can you even argue against the fact that bonds get cheaper when interedt rates rise!? 😆😆 Its a fact dude, its not something up for debate. So unless the feds lower interest rates (which would never happen) bond prices are going to drop and yields will go up. You are talking about all this crap that doesnt matter when i am speaking to you in a factual common sense manner. 🤣
logica
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@jeffmthompson, no i picked the time range right before the GFC, that is factual common sense. I *never* refuted the relationship between bond prices and yields. Remember the TLT is 20+ yr. Short and long term yields move together (somewhat) but not perfectly. There is also a loose correlation between the dollar and bonds (because bonds are deferred dollars), and those have actually been going up against the backdrop of inflation despite the "dollars are worthless" rhetoric you are hearing these days.
To be clear, I think we are more disagreeing about timing more then anything. I do think yields will go up, but they can't in a world where people can't afford it, and all the indicators point to them not being able to afford higher mortgages (loan volume, etc). If there is an asset crash, bonds will rally and then maybe crash right after...I tend to agree with you.
Ultimately if you want to make money in the next few years you better be good at timing...bc I don't think we'll have a run like we did from 2008 - 2021.
jeffmthompson
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@logica, I don't think the FED has the ability to "care" about whether rising interest rates makes peoples house affordability go down. We aren't talking about above normal interest rates. They are technically still lower than average. We created a massive bubble by handing out all of these super low interest loans. With double digit inflation, the FEDs have no choice but to most likely push us into a recession. We already did the dirt low interest rates, we cant go backwards. Right now unemplyoment levels are super low, people are getting paid much higher salaries, so the FED is going to push the interest rates up aggressively because other indicators show we can absorb it. If they get too agressive too fast and it causes a crash then maybe they will pull back some. But we dont have an option but to keep raising interest bro. There is no looking out for people anymore. The FEDs got us through the pandemic with loads of help. Now they are focused on getting the economy back on track. High inflation is much more troubling than people not being able to afford that big home they want.