Welcome to the Ides of March

A couple days ago, this type of headline was appearing, “US two-year Treasury yields drop the most since 1987”

This is misleading.

If only they could specify the ‘drop’. Was it the fastest ? The greatest percentage?

My reminder is to not let such media headlines create so much noise that you are derailed from your investment strategy.

Firstly, a few days ago, those yields are only back to where they were on September 21, 2022 (6 months ago).

Secondly, today’s yields are the same as 6 weeks ago (February 3rd,2023).

The better headline may have been “bond prices rise as buyers aggressively bid for U.S. Treasuries”.

In fact, more buying of 2 year bonds shouldn’t be surprising, as it would merely send the yield back to its 50 week moving average, which is hardly a stretch considering the preceding parabola.

The greater concern would be for those who shorted 2 year Treasuries at lofty ‘yield’ heights betting the Fed would continue its rate hikes into its 8th, 9th or 10th time.

Even if they did, the probability of a streak continuing diminishes the length that the streak continues. Put another way, if you shorted 2’s at 5.05%, you deserved to get whacked.

It was a time to buy bonds, not short or sell them.

Alas, but that’s what makes a market.

March 15, 2023

by Rob Zdravevski

rob@karriasset.com.au