In a time when every market disagreement is referred to as the "wars" -- just take the meme stock wars that are currently gripping GameStop (GME) yet again -- let me introduce you to the concept of the bond wars.
This morning I looked at the price of a generic 10-year U.S. Treasury note (by convention, this is not an actual bond, but a construct to produce a constant 120-month maturity) and saw the 10-year quoted at $90.30. Then a few minutes later, I re-checked my screen and the price has moved to $96.27. Wow! What a move! Take that Redditors!
OK, seriously, that is what we are dealing with in the bond market: small moves and pricing that on a yield basis, which moves inversely to price, are measured in hundredths of a percentage point, or what are known as basis points. So, watching the 10-year yield is not like watching GME, but it is much, much more important to the health of the overall stock market.
Always keep this chart from the St. Louis Fed's excellent FRED database bookmarked and use this Bloomberg rates and bonds table as your guide. CNBC has been a little too meme-y these days for my taste. I believe Bloomberg has been the ultimate arbiter of bond pricing for more than 30 years, so I will use those sources.
Bond yields are in an uptrend. Predictably this morning, European Central Bank president Christine Lagarde announced an aggressive expansion of the ECB's PEPP bond-buying program. Of course, we have a similar program in the U.S. with the Fed's quantitative easing program, which has been operating in different forms since November 2010.
But why should we listen to professional fixed-income investors when we have a bunch of unelected technocrats willing to shower the fixed-income market with money? And, think about this for a second, why should we actually buy securities issued by their own treasuries? Did your head just explode? Mine almost did ... but that was 10 years ago. Nowadays, it is just the way the game is played. That the U.S. Federal Reserve now owns 17.3% of the paper issued by its sister organization, the U.S. Treasury, doesn't bother me at all. Hahahaha! Of course it does.
So, let's put away the soapbox and play the game. Jerome Powell and Lagarde are classic schoolyard bullies and borderline fascists who use intimidation and obfuscation to try to control interest rates. By definition, an interest rate is the cost of money, and there are only two entities that can actually control that. Our old friends: supply and demand.
I have been making very nice profits -- although not this week -- by betting against the Fed and betting for higher interest rates. One way to do that is to play the Nasdaq, which has become an inverse proxy for 10-year U.S. Treasury note rates, but I would rather go straight to the source. Here is a non-comprehensive list of short-Treasury exchange-traded funds. If you disagree with me (that is why we have markets) I present a list of the corresponding long-Treasury (long the actual bonds, so those ETFs rise when rates fall) ETFs as well.
Have at it. Make a choice.