Are Bonds Still Safe?

I hate the word therapist, as in, “I have a therapist.”

When I hear people say it, I immediately think, what’s wrong with them. Or they must have a problem.

Isn’t that interesting?

The first thing my brain does is think “they have a problem and not, wow, they want a better life and they’re doing something about it.”

So I looked up the word therapy to see what it really meant, and yup my brain got it right. Therapy’s definition is the treatment to relieve or heal disorder.

So of course I had to look up the word disorder. And that definition, “a state of confusion.”


No wonder I have judgement about the word therapy. A word that represents treatment to relieve a state of confusion with supporting words like disarray, chaos, confusion, turmoil and abnormal conditions.

And it’s the last one, abnormal conditions, that struck me.

So why should this matter to you and your money?

When I talk to people, they tell me, the market isn’t behaving the way its suppose to. It’s acting abnormal.

But the truth is closer to the fact that, like many families, it’s all a bit abnormal most the time.

“The longer a market is stable, the more unstable it will become when crisis hits.”  Hyman Minsky

A market that has almost zero volatility (until recently) is a bit abnormal. A stock market that ‘only goes up’ is a bit abnormal. And a bond market that never goes down is also abnormal.

But when abnormal starts to be “normal”… it’s only a matter of time when the market will teach its investors a lesson.

*Side Note: scary data of the day, 50% of all money managers and advisers started their careers after the Global Financial Crises. Are they prepared for a stock market that doesn’t always go up? Or how about a bond market that doesn’t always go up?

I want to show you something.

It’s about the market over the past three weeks.

It’s very interesting and telling, but before I do, I want to finish my comment on the words therapy and therapist.

I have been seeing a therapist in one form or another since I’ve been 18.

And you know what?

It’s changed my life. It’s clarified my thoughts and brought peace to my body in a way that reading, meditation, and exercise has not.

And yet that word…Yuk.

If I told someone I was seeing my trainer, coach, tutor, teacher, instructor or mentor they’d most likely be curious and ask more about what I’m up to.

That person might even be thinking, “oh he’s working on his life, he wants to be better at fill in the blank. Wow, that’s great. But to say you are going to your therapist…

That pretty much shuts down the conversation. Crickets.

I find this fascinating. When people want to work on their emotions they don’t go to a ‘feelings coach’ or an ‘emotions trainer’ they most likely go to a therapist.

And yet managing and understanding our feelings is somehow still looked down upon. And yet, the better life is always behind clear understanding of our emotions.

And since the market has corrected 10% there have been a lot of emotions getting spilled out onto the world.

And if you made the mistake and turned to the noise machines (pick of the month newsletters, money shows) during the past three weeks then those emotions have probably gotten the best of you. Or worse.

The market is telling us something. Can you hear it?

Let me show you.  

This most recent 10% decline has told us something very important about the stock market and the bond market.

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The problem?

If you’ve been on the receiving end of noise from Facebook, pick of the month newsletters, money shows and fear mongering, you might have missed it completely.

This first chart is the S&P500 Index. You are seeing two years of data with the 10% correction at the very end of the price chart.

S&P 500 with dividends 2-years

First off.

Doesn’t stepping back help a lot?

I see an uptrending price chart. Up and to the right.

Imagine you were reading this blog post zoomed in 700%. You could only see a few words or maybe even only a few letters. You’d be seeing gibberish. You’d be seeing confusion. By looking too closely you would miss the entire point of the blog post. And that’s why you probably don’t read at a 700% zoomed in level.

Look at the image below and start to understand how zooming in might be bad for your wealth.

The image below is also the S&P500 price chart, I’ve just zoomed in. It looks different doesn’t it?  It looks scary. It looks like your future might not work out. It looks like your kids or grandkids are going to the community college in the next town over.

Noise-free investing matters.

S&P 500 with dividends last three months

Next look at the price chart below.

Below is a price chart of bonds.

You know, that asset that most people connect to safety. Protection. And guarantee.

But here’s what I see…

The chart below is the US 10yr Bond which is perhaps the most quoted investment on the planet. More financial instruments are connected to the price chart you see below than [almost] any other price chart.

The price chart below is using the exact same time frame of the very first price chart I showed you above of the S&P500 Index.

10yr US Treasury Two Year Chart

Doesn’t eliminating noise help?

The above price chart is NOT going “up and to the right.” Its trending down. AND THESE ARE BONDS!

Those things that you were taught are safe. I know when investors hear the word bond, their brain is actually hearing “safe.” Or protection. Or guarantee.

I know because I often will ask investors what words or feelings they see or feel when they hear the word BOND.

But this picture is telling us that “bond” doesn’t always equal safe…protection…or guarantee.

In fact, if I step back even more and show you a twenty year price chart of the 10 yr US Bond it gets even worse.

People, that black squiggly line between the downward sloping trend lines is not what “safe” looks like. Yes, its the bond price chart. And no, this is not what safe looks like.

10yr US Treasury 20 Year Chart With trend lines

Here’s what’s most interesting about what bonds might be telling us. Not only has the 10yr US Bond been falling in price for almost six years. But when the stock market fell 10% over nine trading days just recently, bonds fell too!!!

You read that correctly.

Bonds, the safe haven didn’t act safe, they fell.

Now to be fair, they only fell -1.85%, so I understand that one could argue by only falling -1.85% and not more, that they were saving their investors.

But I would challenge that.

Bonds (10yr Us Treasury) have already been falling for 69 months. And the time one might think they should rally or support their investors is when the stock market declined 10% in nine trading days.

A 10% decline is normal. A 10% decline in nine trading days is abnormal.

The bond market is telling us something.

And if your life is consumed by the noise and zooming in 700% (which is kind of the same thing) then your money might not be able to get the signal that something (has changed) is changing.

And so just like I have a problem with the word Therapist meaning you have something wrong with you. I also have a problem with the word Bond meaning, you are safe.

In Your Corner,

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RC Peck, CFP

P.S.  Would you like to have Portfolio Review and see what a noise-free portfolio might look like?


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