With the stock markets entering 2017 rallying into all-time highs, bonds have gotten very little attention. Or rather, they are just getting very negative attention. I really don’t like all the high-yield U.S. bonds and junk bonds that seems to get most of that attention. I think if you going to buy U.S. bonds, you have to look at Treasuries. For those that don’t know, buying a bond is basically lending money with the expectation that you will receive your money back at the end of some time period and receive interest payments while you wait. With the backing of the U.S. government, which I hope we can still rely on over these next 4 years, bonds have always been thought of as the safest investment an investor can make.
Taking a look at the $TLT as a proxy for all long-term Treasury bonds, we see that bond prices have risen dramatically in the aftermath of the 2008 financial crisis. Most recently, however, prices have taken a beating since the election of Donald Trump. Many screamed it was the end of bonds and the start of a new bearish cycle in the bond market.
I just don’t believe it. Looking long-term, bonds have simply corrected from all-time highs (in the $TLT). Prices have settled in the Fibonacci levels drawn off the entire rally in bond prices since the lows in 2004 (again, according to the $TLT). In fact, bond prices could certainly go lower from here… and still be in a correction. So I hesitate in calling the end of bonds as we know it. Rather, it could be just the beginning….of new life in bonds.