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June 30, 2014 at 08:00 PM
In one of 2014′s most confounding developments for Wall Street’s army of analysts, bonds are outperforming stocks and long-term U.S. Treasuries are leading the way. At the start of the year, few observers expected this trend.
Generally, improving economic growth should push interest rates and bond yields up not down. But falling yields could be hinting that corporate earnings and growth might not be strong enough.
The iShares 20+ Year Treasury Bond ETF (TLT) has gained 9.22% year-to-date through June 7, compared to the 6.44% rise in the Vanguard Total U.S. Stock Market ETF (VTI). Long-dated Treasuries have been hot performers, as the 30-year yield has fallen over 12% since the start of the year to around 3.44%. Bond prices and yields move in opposite directions.
Curiously, the trend of falling yields has occurred even though the Federal Reserve began scaling back QE asset purchases to $45 billion earlier in the year. Expectations were that less Fed buying would cause a sudden spike in rates and crash bond prices. But it hasn’t happened.
