The secret to any great magic trick is getting people to look in the wrong place. That is exactly what is happening right now in the bond market, where yields have been rising right beneath the noses of investors who have been mesmerized by a hot stock market.
"Just in the past two weeks, the yield on the 10-year Treasury bond is up 20% and the 2 year, which is a little more volatile, that's up 35%," says Russell Pearlman, senior markets editor at SmartMoney magazine, which is published by the Wall Street Journal. "So while everybody's been focusing on the stock market...bonds have gotten slaughtered."
The bite from bond yields is definitely gaining traction and attention, but it is also important to put things into perspective. While those percentage moves are staggering, a 20% bump means the 10-year yield rose from 1.91% to 2.30%. The 35% move in the 2-year treasury took it from 0.29% to 0.38%.
Also, it should be noted that the corresponding decline in bond prices is tiny compared to the seismic shift in yields, and is somewhere in the vicinity of a quarter of a point, or $25 per $10,000.
But the real rub will be for those investors who swapped into Treasuries specifically because they wanted to eliminate all risk, and now are discovering something different.