US 10Y Bonds...What Do We Know?

2021年12月4日

US10Y

With the wild drops in the market over the last few weeks, I have considered turning a greater percentage of my portfolio to bonds. Listed in this article are the findings of my research.

Todays Yield closed at 1.341%, investors receive a coupon of $1.375 semi-annually. Wow...That is pretty discouraging. With insanely low interest rates this year, (Note interest rates and bond prices are inversely related), bonds are expensive for very little yield. The feds have released data on a 6.20% inflation rate which is rather naive in my opinion, considering they continue to print money. The M2 Money Supply measures the total cash and equivalents in the USA, this grows on average of 11.31% a year, we are at a YTD of about 37%. Over three times the average currency printed. This large money supply is a main factor in why interest rates are so low. So will interest rates ever grow back to their pre-COVID levels? That is not for me to answer, as I have no idea. I enjoyed a projection done by RealMacro about how we are rapidly heading towards a recession. I believe all investors can agree that it is perfect market conditions for a recession. Many investors are very new; they have never experienced a recession, this has come from the meme stock phase. Will investors begin pouring into fixed securities? Is the security worth the expensive costs and low yield? Will the feds continue to purchase bonds back? It is important to note, when the Feds buy back bonds they are increasing the money supply in the economy by swapping bonds for cash, and opposite when selling bonds. If the Feds wanted to cut back inflation wouldn't it make sense to sell more bonds? But by cutting back interest rates, would investors really have an incentive to purchase bonds?


Key Notes:
M2 Money Supply Measures the total cash in circulation
Bond Buy Backs - Increase Money Supply
Bond Sell Offs - Decrease Money Supply
Money Supply and Interest Rates are inversely related
Bond Prices and Interest Rates are Inversely related
Bond Yields and Interest Rates are parallel

NOT INVESTMENT ADVICE - I am not a licensed Advisor