The Death of Bonds

death of bonds

Bondholders have a moment of truth.

A moment of truth is when someone is faced with a decision that has to be made. Or a crises that has to be confronted. Or a time when a person is tested.

There’s no choice in it. The world presents it to the person.

What moment of truth?

The world is moving (moved) from a deflationary megacycle (interest rates falling and bond prices rising) to an inflationary megacycle (just the opposite).

These shifts occur every 30 to 40 years and that shift is happening (happened) today.

Inflationary Cycle Sign #1:

  • For two plus years gold has been beating the price of bonds = inflationary
  • For two plus years copper has been beating the price of bonds = inflationary
  • For two plus years oil has been beating the price bonds = inflationary
  • For two plus years US real estate has been beating the price of bonds = inflationary
  • For two plus years the overall commodity complex has been beating the price of bonds = inflationary

Inflationary Cycle Sign #2:

  • The price of the 1-year US bond peaked four years ago.
  • The price of the 2-year US bond peaked five years ago.
  • The price of the 5-year US bond peaked six years ago.
  • The price of the 10-year US bond peaked six years ago.
  • The price of the 30-year US bond peaked almost two years ago.

Inflationary Cycle Sign #3:

  • The Fed is selling $500 to $800 billion worth of bonds going forward = inflationary
  • Jerome Powell (The Fed Chairman) said he will raise the federal funds interest rate six more times by the end of 2019 = inflationary

Bonds are NOT a good growth tool, diversifying tool or capital projection tool during inflationary times.

In Your Corner,

RCPeck-Dig Signature.JPG     
RC Peck, CFP

P.S. If you’ve been taught that you should always own bonds maybe because of your age or self described risk tolerance, perhaps a portfolio review could help you. Click here.

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