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Bond Market Entering Shift Not Seen Since 1946: Yamada


Stocks are the hare to bonds' tortoise. While equities inflate and implode with relative regularity, the process is much more gradual for those on the debt side. According to technical analyslt Louise Yamada we're in year 33 of the current bond cycle and poised to start an era in which rates will rise. The last time the bond market made such a directional shift from lower to higher rates was 1946.

There's no real rush to flee bonds but the long term types should exercise some caution. "We may be getting some early evidence that there's a bottoming process in rates, which means a topping process in price," Yamada notes in the attached video.

It's not just a function of time. The 1946 shift happened in the wake of the Great Depression, a period in which the country experienced deflationary pressures not unlike what we saw over the last five years (yes, deflation... go sell your house, inflation hawks). The rising rate frenzy ended in the early years of the Reagan administration when the term "Stagflation" entered the national lexicon and double-digit rates were the norm.

The frenzy now to get into bonds is the opposite of what we saw in the '80s. "One of the things that's so disturbing is that people are rushing into the bond market having come out of stocks," Yamada says with a note of concern. Buying debt in the hopes of getting a 1% return isn't investing, it's hiding. That shouldn't be an option for managing your money.

Yamada isn't suggesting bond investors storm the exits, just that they exercise some caution. "The only advice here is stop holding long-end (treasuries) and start moving short-end so that as rates go up in the next five years you have an opportunity to roll your short positions into a slightly higher rate."