The yield on 10-year U.S. Treasury bonds (^TNX) has already
surged more than 53% year-to-date. How much higher can rates go
The chart below gives us a historical point
of reference. It shows the yield spread (or difference) between
10-year Treasury yields and the Federal Funds Rate (
). The yield spread between both benchmarks has never been more
than 400 basis points or 4%.
3 Ways to Prepare for Higher Stock Market
And today, with 10-year yields now around 2.90% and the FFR between
zero and 0.25%, the 10-year yield would need to shoot up to 4.25%
to break historical records. That leaves a potential 1.35% upside
in 10-year yields, should the FFR hold steady and should rate
relationships stay within their historical limits.
The 2013 selloff in U.S. Treasuries (NYSEARCA:IEF) is the 13th
largest over the past 50 years and bond investors (NYSEARCA:AGG),
especially holders of longer maturating debt, are getting
The iShares Barclays 20+Yr Treasury Bond ETF (NYSEARCA:TLT),
which tracks U.S. Treasuries with maturities of 20 years or longer,
has been crushed 14% year-to-date. With TLT's 12-month yield now
near 2.92%, it would take almost five years of yield just to recoup
2013's year-to-date losses! Of course, that's assuming no further
spikes in interest rates, which is a fairyland view at best.
Conversely, it's been a great trade for Treasury bears. Inverse
Treasury ETFs that climb in value when rates rise like the
ProShares -2x Treasury 20+Yr Bear ETF (NYSEARCA:TBT) ahead by
+24.38% and the Direxion -3x Treasury 20+Yr Bear ETF (
) up +34.48% year-to-date.
Because of surging interest rates, the Federal Reserve is
sitting on roughly $200 billion in mark-to-market losses, as our
just released September ETF report highlights. Will
losses in the Fed's bond portfolio top a trillion dollars? Could it
lead to a central bank solvency crisis?
uses a combination of technical analysis, market sentiment, and
common sense to be on the right side of the market. Since the
beginning of the year, 78% of our time stamped ETF picks have
turned a profit. (through 6/30/13)
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