Times a-changin’ for treasury bond fortunes

Much of this year, treasury bonds have been moving in the opposite direction as the stock market, but “The Times They Are a-Changin’ ” (Dylan, 1964). For example, as stocks declined on geopolitical tensions in the Ukraine earlier this year, treasury bonds would rise as some money shifted from stocks to bonds.

Then, as concerns over Ukraine would subside, some money would migrate from bonds back into the stock market, driving stock prices higher. This is the textbook way the financial world is “supposed” to work. But, I’ve learned over time that there are few absolutes when it comes to investing, and this week is one of those times.

Over the past five trading days, the Barclays U.S. 20+ Year Treasury Bond index gained 0.76 percent while, surprisingly, the Standard & Poor’s 500 gained 0.26 percent over the same time period.

Astonishingly, this gain in long-term treasury bonds came during a week when Fed Chair Janet Yellen cut the Fed’s stimulus amount by $10 billion. This was something that, when merely suggested roughly one year ago, had bond owners hitting the eject button. But “The Times They Are a-Changin’ ” and Treasury bond buyers may now be looking at new reasons to remain optimistic about their positioning in bonds for the time being. One of those reasons may be the April employment report, which we will learn more about today.

Should the nonfarm payroll numbers come in weaker than expected, this would be a plus for bondholders, since it would suggest that the economy is not as strong as it appears, and therefore lower interest rates and stimulus funds could be around longer.

With this week’s bias toward higher-quality bonds, other top-performing areas of the bond market included international corporate bonds and Build America Bonds. The S&P International Corporate Bond Index gained 0.76 percent over the past five trading days and the Bank of America Merrill Lynch Build America Bond index was up 0.48 percent over the same period.

This article was written byLaif Meidell, CMT, president of American Wealth Management, and portfolio manager of the AdvisorShares Meidell Tactical Advantage ETF (MATH). This commentary originally published in the Reno Gazette-Journal.