Another look at the 30-year government Bond
Web
Buzz 2008.01.05
The latest sentiment numbers indicate that
bond market participants are 99% positive and 1% negative–that’s about as
lop-sided as anything can get. That explains in good measure why the recent
chart on the long bond looks as it does. Money is pouring in at an
unprecedented rate. With only 1% left to buy, it would seem that a backup
of at least 50 basis points is in order. At the present time a move to 3%
or above in yield makes the long bonds a buy again, in our opinion. Please
note the chart below.
Adapted from DowTheoryLetters.com
From a fundamental standpoint, low government
bond yields seem to be the order of the day for at least the next six to
eight months. Nowhere is there an economic bottom in sight. We do believe
that there may be some good buys in higher grade corporate bonds. As you
know, our long predicted large widening spread between corporate bonds and
government bonds has taken place, and we would expect those spreads to narrow
somewhat as the credit lock-up subsides. In some of our “laddered”
accounts, we have sold government bonds, taken our profits, and bought
investment grade corporate bonds.
2008 has been quite a year. It was in 1995
that we first predicted a 3% yield on the 30-year government bond. Those
who laughed at us then have said nary a word as of late. A manager of a
huge state pension fund cautioned us back then that if he were us, he
wouldn’t say such a thing out loud. Another manager based in Austin, Texas
spent a whole day telling us why we were wrong. We also had some critics
who said, “You always say the same thing.” We haven’t heard from them
lately either. What we really regret is that many of our clients did not
have the patience to stay with us.
Happy New Year to All!
Central Plains Advisors, Inc.
Information
contained in these commentaries is based upon information obtained from
sources both external and internal which we consider to be reliable, but
the accuracy of the information and the recommendations contained herein
cannot be guaranteed, nor do they constitute a solicitation for the
purchase or sale of any securities mentioned herein. Information contained in this commentary
may not be reproduced in any form without written permission from Central
Plains Advisors, Inc.
