Stock to Sell #6 – Bonds and Bond Funds
Note in the chart of the 30-year U.S. Treasury bond that the line just above 3% yield. This is where the Federal Reserve tried to defend the bond from further declines.
On Wednesday, Dec. 12, the Fed announced a new stimulus program (QE4) with the intent of keeping interest rates under 3% on the 30-year Treasury bond. But market forces have intervened, and bonds closed above 3.2% for the first time since last April. This is a change in the market’s reaction to Fed easing and indicates for the first time that the bond bubble could be about to burst.
Investors who own long-term bonds (10-year-plus maturities), and especially those with bond funds and ETFs, should sell, because once a rate acceleration takes place, losses in long-term bond holdings rapidly accumulate.