It's been a tough week for the bulls, who are probably glad the stock market is closed Friday in observance of Good Friday, and doubly so after this morning's much weaker-than-expected jobs report.
The stock market got whipsawed midweek by both renewed fears about Europe and new concerns the Fed won't be doing another round of quantitative easing anytime soon.
Fears that the Fed won't be doing another round of bond purchases also hit the Treasury market, which suffered its biggest selloff in three weeks on Tuesday.
After approaching 2.30% on Tuesday, yields on the 10-year Treasury quickly retreated below 2.20% Thursday and were falling again Friday morning after the government said U.S. payrolls rose just 120,000 in March, the fewest in five months and well below expectations. In recent trading, the yield on the 10-year Treasury was down to 2.07%.
At least for the moment, the "bond bubble" so many pundits are trying to call shows few signs it's about to burst. Apparently, fear of a European crisis plus weaker-than-expected economic data trump worries about whether QE3 is coming or not.
Bonds Make No Sense
Still, "no investor other than the government would be willing to own bonds at these levels," says Doug Dachille, president and CIO of First Principles Capital Management. "It makes no practical sense."
Treasuries still seem to benefit from the "flight-to-safety" trade and have an underlying bid from the Fed, which are supporting prices. But bond yields are below the rate of inflation, which makes Treasuries uneconomical, Dachille says.
"The reason you save money today is you believe you'll have more money tomorrow to buy more goods," he says. "You have to beat inflation. Why else would you save money?"
Of course, some believe Ben Bernanke is hoping many Americans will come to the same conclusion and spend, rather than save, in order to prop up the economy.
"I would agree with that policy if we were Japan and had an overabundance of savings," Dachille says. "[But] to try and motivate consumption in a time when people haven't saved enough in the first place...and then lower the returns on savings actually is counterproductive. When returns on your savings go down, you actually have to save more to retire sometime in the future."
In a nutshell, this explains why there's been such a focus on dividend-paying stocks in the past year and why, generally, many experts say stocks are more attractive than bonds at current levels.
Dachille says he doesn't invest in stocks because he doesn't like to invest in what he doesn't know. In the world of fixed-income, he recommends TIPS because they are "the only thing that will protect you" when inflation makes its inevitable comeback.