The above chart shows Treasury bond yields (upper panel) and two proprietary indicators (lower panel). (Click on the chart to enlarge it).
In March yields soared to 2.25%. My indicators in the lower panel were saying yields were much closer to a top than a bottom.
Let me stop here for a moment. Why do I care about bonds? Because I buy bonds for capital gains. If yields go back down to the previous bottom of 1.7%, bond prices will have to appreciate about 15%, possibly more.
My indicators are now saying yields are more likely to decline than rise. Yields will rise when the two indicators bottom and head higher from much lower levels.
But there is another important point to make. In the past several months declining yields have been a bad omen for stocks. So, reducing investment in stocks and buying bonds seems a good strategy.
But there is a catch, however. Will the two indicators be correct this time? Understanding the relationship of business cycle forces and bond yields will improve your odds of making money.
George Dagnino, PhD
Editor
The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull or Bear Markets
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Author, Profiting in Bull or Bear Markets
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1 comment:
A. If "likely" is the opposite of unlikely" . .
B. Then likely is a much better choice than "not unlikely."
C. Therefore, I presume that you meant "A recession is likely due to tight monetary policy."
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