Home Logon FTA Investment Managers Blog Subscribe About Us Contact Us

Search by Ticker, Keyword or CUSIP       
 
 
 
Blog Home
Bob Carey
Chief Market Strategist
Bio
X •  LinkedIn
 

  Even People Hiding in a Safe House Keep One Eye on the Exit
Posted Under: Bond Market
Supporting Image for Blog Post

 
View from the Observation Deck

  1. The bull market in Treasuries has lasted three decades, but even bull markets experience down years. And at some point, they end altogether.
  2. From 1981-2010, there were 13 years in which the price-only return on Intermediate Treasuries (see chart) ended a calendar year in negative territory.
  3. While Treasuries have provided investors throughout time with the optimum protection against credit risk, they have always been vulnerable to interest rate risk.
  4. What makes today's climate tenuous is that interest rates are at historically low levels. The yield on the 10-year T-Note stood at 2.40% on 10/27/11.
  5. Our concern is that many investors have funneled a considerable amount of capital into Treasuries because they viewed them as a safe haven.
  6. The turmoil surrounding the debt crisis in the European Union, particularly in Greece, certainly warranted such consideration.
  7. But the news in Europe changed in a meaningful way on 10/27 due to an agreement forged by EU leaders, banks and the International Monetary Fund. 

  8. So the question facing investors in Treasuries is as follows: Where does my risk lie now? We believe the risk lies in the potential for rising rates.
  9. Based on the 2.5% annualized GDP growth rate for Q3'11, we believe that some investors may find greater value in equities moving forward. In other words: "risk-on."
  10. The P/E equivalent on the 10-year T-Note is currently around 40 to 1, and, while Treasuries provide principal protection if held to maturity, they offer zero growth potential.
  11. The forward-looking P/E on the S&P 500 is currently 12.9, according to Bloomberg. The 2012 estimated earnings growth rate for the index is 12%, according to S&P.

 

Posted on Friday, October 28, 2011 @ 8:02 AM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
Search Posts
MARKET ANALYSIS
Market Commentary and Analysis
Market Commentary Video
Monthly Talking Points
Quarterly Newsletter
Market Observations
Subscribe To Receive Email
 


 PREVIOUS POSTS
Best Recession Ever
One Man’s Take on the Potential Upside of the S&P 500
Perspective on the 3rd Quarter
Preferred Securities Offer Edge Over Common Shares of Financials in Current Climate
Companies Have Plenty Of Room To Boost Dividends
Talking Points - A Recap of September 2011
Sell-Off in High Yield Corporate Bonds Pushes Yields Back to Longer-Term Norm
Dollar Beating All Assets in September Undermines S&P U.S. Debt Downgrade - Bloomberg.com
Why U.S. Stock Funds Could See Year-End Rally - MarketWatch.com
Come in off the Ledge
Archive
Skip Navigation Links.
Search by Topic
Skip Navigation Links.

 
The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
Follow First Trust:  
First Trust Portfolios L.P.  Member SIPC and FINRA. (Form CRS)   •  First Trust Advisors L.P. (Form CRS)
Home |  Important Legal Information |  Privacy Policy |  California Privacy Policy |  Business Continuity Plan |  FINRA BrokerCheck
Copyright © 2024 All rights reserved.