Interest rates have been falling over the last month as the Federal Reserve's quantitative easing program gets extended and political uncertainty grows. The interest rate on a 10-year Treasury note (^TXN) is sitting at 2.7% after tickling the underside of 3% in early September. Rates have been trending lower for more than three decades, suggesting to some the move higher in yields so far this year has been just another fake-out.
"Book the trade!" Munson shouts in the above video. He says the Fed drove this trade by delaying the taper — and a flight to safety ahead of the government shutdown pushed the trade even harder. The difference between 2.7% and 2.5% yields is irrelevant, but getting long bonds while the 10-year yield breaks out over 3% would be a disaster.
Advisors may like to sell customers on the idea that bonds are a safe haven, but Munson regards them as a place to park cash until opportunities emerge in equities. The trade is over, and it's a miracle that it lasted as long as it has. Munson is adamant: If you're getting ready to retire, go to your advisor and grill him or her about the duration and credit risk of your bond portfolio.
He says there's a good chance you have more risk exposure than you may think.
More from Breakout: