US Bonds

The longer term demand for safe spreads is likely to remain strong once yields normalize and volatility recedes.

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We think 3% is the upper bound in the short term. However, we believe it will settle back closer to 250 bps by the end of the year.

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20 Year T-Bond: 5 3/8’s, Maturity: 2/15/2031, YTM 2.88% (vs. April 30th YTM at 2.39%)

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High yield bonds are not immune to the tapering of QE.

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Inflows into Muni bond funds turned negative; higher interest rates currently the biggest risk.

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Consistent with our overall cautious view on credits, we still like “safe spreads”.

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As we enter April, our view of the bond market is increasingly cautious. Very short-term, a snap back is expected after the rocky action in recent sessions, but then what? This issue we are pulling in our horns, reducing long bond exposure.

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The bond market traded in a narrow range in December, but did show some spark in the first days of the new year. For most of December, it looked like the bond players took an extended vacation.

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Incredible action again in March. Long T-bonds are beating stocks year to date. Short-term and long-term bonds look higher and don’t ignore the possibility of a “return to normalcy” (6%) in 1986. It seems unlikely, but it could happen sooner than even we had imagined.

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Incredible February action. 8% looks like a trouble zone for a while, but we still expect to see 7.5% or lower over the next twelve months. Traders should be selling some bonds around 8%.

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The bond market is back up trying to punch through its old peaks of June, July and September 1985.

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A large trading range has developed which is likely to be unbroken for a while. Tactically, we would continue to use the 10.20%-10.40% zone (long T-bonds) for profit taking.

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The cyclical bull market may still live, but the best of the move is behind us. 9% T-bond yields may be realized in the next year or so, but in coming months not much upside action is expected from current levels.

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The cyclical bull market still lives, but the best of the move is behind us. 9% T-bond yields may be realized in the next year or so, but shorter-term not much upside action is expected from current levels with a 10.40%-11.40% range expected to prevail for a few months.

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The cyclical bull market still lives, but the best of the move is behind us. 9% T-bond yields should be realized in the next year or so, but shorter term not much upside action is expected from current levels. Actually, a correction seems more likely, maybe to 11.3%-11.5%.

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May was a dynamite month for bonds, with total returns of 9%-10% registered for most long issues. Long zeros racked up gains in excess of 20%. The bond market now is ahead of itself although the Major Trend remains bullish.

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We remain bullish short-term, long-term and very long-term. T-Bonds are expected to move to 11.25%-11.50% before April is over.

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Bonds weren’t more fun in February. 5%-6% declines for the month were the rule at the long end. The expected correction in the bond market is underway and could be about over.

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While now uneasy about the shorter-term outlook for the bond market, our minimum 1985 target is 10%, perhaps even 8%-9% if the politicians really come to deal with the deficit.

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Our 1984 target of 11.5% for T-Bonds was achieved. Short-term we don’t know what to expect, but a consolidation or correction would not be a surprise.

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