The End of the Bond Bull

end of bull bond

The end of the Bull Market is being declared by many experts.  In the upper chart in December of 1982 the 10 year treasury was 16%.  The 10 year treasury was 1.65 earlier this year and is currently around 2.20%.   We don’t believe the interest rates can move much lower but we do have the Federal Reserve continuing to decrease supply which is lowering the interest rate with the QE3 program.   Several economists are predicting to see interest rates start to normalize over the next few years as the health of the economy is slowly improving.  Some are predicting the 10 year treasury to jump to about 3.5 – 4% over the next 18 months which would be a more reasonable range.  The lower chart above is expanding the red circle in the top chart to highlight the 10-year treasury yield move from November 2012 through May 2013.  We appear to be breaking above the 2% range and this could be a continued pattern.  So what do you do to protect against the end of the bull market in bond?  The quick answer is to shorten up durations and understand that we could be in a coupon plus 1 or 2% bond environment for the next several years, understand other available fixed income asset classes and be prepared to utilize some alternative solutions.

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