Stocks, Treasury prices soar; what gives? Not that Wall Street price moves ever make total sense, but what was odd about Monday's rally, which powered the Standard & Poor's 500-stock index to another record high, was the fact that the yield on the 10-year Treasury note plunged to its lowest level of the year. That means bond prices rallied, too.
Normally, when stocks are in rally mode, it's a sign of good times ahead. When
things are good, money tends to flow out of the bond market, not into what is
viewed as a haven.
What gives? At one point Monday, the yield on the 10-year note fell to 1.65%,
eclipsing Friday's prior low of 1.66%. It closed at 1.67%. At the start of 2013,
the yield was 1.76%, and seven weeks ago, it hit a high for the year of 2.06%.
The lowest closing yield on record was 1.4% on July 24, 2012.
Yields have plunged recently due to a weaker-than-expected first-quarter GDP
number released by the U.S., Europe's ongoing debt problems and Japan's decision
to buy bonds to stimulate its economy.
At these super-low levels, however, Russ Koesterich, global chief investment
strategist at BlackRock, told clients Monday that the risks outweigh the rewards
of owning Treasuries.
"While rates could fall further in the short term, in our view, Treasuries look
extremely unattractive," he wrote in his weekly commentary. "Treasury yields are
now below the rate of inflation, meaning that they offer little value beyond
acting as a hedge against higher risk assets." His advice: Use the latest bond
rally to lighten up on your position.
