There is a famous contrarian indicator in the market that has worked almost perfectly: magazines covers. This weekend’s Barron’s cover is titled “Time to buy bonds”. In the chart below, you can see how since December 2021, the Bloomberg U.S. aggregate index has lost almost 20% of its value and the 20+ year Treasury ETF has lost almost 50% of its value. That may have provoked the reaction to declare a good time to buy bonds, but we forget that bond yields have been falling, almost uninterrupted, for 40 years. We also forget that the biggest structural buyers, namely The FED, China, Japan and US Banks are no longer supportive of treasuries, for different reasons. In the supply side, the fiscal deficit keeps growing and up until now, the U.S. treasury was financing it almost exclusively with T-bills. Now, they have announced the issuance of long term bonds to lock in these rates and alleviate the burden (and the cost) of quarterly auctions. Considering the above mentioned, and understanding that the market may take a breather, is it really time to buy bonds?
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Source: Barron’s
