10 YEAR TREASURY RATES ARE "BACKING UP" / SPROTT ASSET MANAGEMENT

Chart of the Week: 10 Year Treasury Rates are ‘Backing Up’

Friday, May 31, 2013

David Franklin

 

It’s been a tough month for U.S. bond funds. Our chart of the week depicts the increase in the yield of the 10-year U.S. Treasury Bond. Yields have increased by more than 25% from 1.63% on May 1^st to 2.12% on May 30^th. This quick sell-off hurts investors most at funds holding long-term debt, which is sensitive to surging interest rates. Bonds have tumbled around the world this month with the Bank of America Merrill Lynch Global Broad Market Index down 1.3% in May, poised for the steepest loss since April 2004, while Treasuries have dropped 1.9%. 

Yields rose in May after a report showed U.S. consumer confidence climbed to a five-year high and the 20-city S&P Case-Shiller Home Price Index (to the end of March) climbed 10.87% on the year, the fastest pace of increase since April 2006. According to Bloomberg, the impact of rising rates has had a negative impact on most bond funds this month with the two largest bond funds in the United States now reporting negative total returns for 2013, year-to-date. 

What is an investor to do? Michael Craig, Portfolio Manager at Sprott Asset Management had this advice, “We are entering a generational bear market for bonds. Investors should reduce allocations to index bond funds. Clients should consider adding positions to ‘go anywhere’ bond funds that have the flexibility to increase their cash levels and potentially short bonds where appropriate.” 
.