Low Yields Don't Make a Bond Bubble
Compare this to buying the SPDR S&P 500 ETF at $120 on June 17, 2005 and selling it at $135 on Monday, July 16, 2012, which would make you a 15-point profit for a gain of 12.5%. Thus the bond ETF outperformed the S&P 500 by 27.1% over the past seven plus years. This occurred while many analysts and strategists told investors to avoid U.S. Treasuries as dead money.
Courtesy of Thomson/Reuters
I am not saying that this trade will work today. The yield on the 10-Year U.S. Treasury is trading around 1.50% and my semiannual risky level is at 1.389%. Instead, I recommend booking profits on U.S. Treasuries and shifting to cash as your safety strategy.
In my opinion investors are currently flocking into the U.S. 10-Year note at 1.50% because they are worried that U.S. stocks could crumble as they did between October 2007 and March 2009. The S&P 500 declined by more than 50% to a March 9, 2009 low.
Keep in mind that Federal Reserve policy is encouraging a lower 10-Year yield and that the Fed may cause the U.S. economy to turn Japanese. On Tuesday, the Japanese 10-Year yield closed at 0.77%.
At the time of publication, the author had no positions in any of the investments mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.