Persistent talk about the "Great Rotation" - the long-awaited shift of investor assets from bonds to stocks - and the possibility of a bond market bubble have permeated the market so far this year, lending an air of urgency to the increase in the yield on the 10-year U.S. Treasury note from 1.76% to 2.01% since December 31. (Keep in mind, prices and yields move in opposite directions.)
At a time when most experts are very negative on bonds, it's interesting to hear a different perspective. This week, that perspective came from Dan Burrows at InvestorPlace.com via his article, "Don't Be Too Quick to Dump on Treasury ETFs". Among the interesting points he raises are:
- Even if a Great Rotation occurs, Treasuries may actually hold up relatively well since individual investors hold a fairly small percentage of the total Treasury market.
- With Treasuries having performed poorly in recent months, yields have begun to climb up to levels that are becoming more attractive. The fund currently yields 3.01%.
- If the stock market weakens or the financial markets are hit with unexpected bad news, Treasuries are likely to benefit from a "flight to quality."
The last point is perhaps the most interesting given that the stock market has gone straight up since mid-November and investors are exhibiting a little too much exuberance at this stage. It's therefore worth questioning whether Treasuries - which tend to move in the opposite direction of stocks - are as bad of a bet as so many pundits are saying as we move into the spring, a period that's proven troublesome for stocks in each of the past three years.