A Bond Market Meme
"Rates are so low it's hard to see them going much lower, but it's easy to imagine them going higher," said Kevin March, chief financial officer of Texas Instruments.
It is certainly true that most of the time when the yield spread is high the way to bet is that long-term bond rates are coming down and long-term bond prices are going up. But somehow I can't see U.S. nominal interest rates falling much lower than they are now.I don't buy it. Why? Note this fact: The U.S. ten-year Treasury bond pays 3.18 percent, whereas a ten-year Japanese government bond pays 1.16 percent.
No, I am not predicting the United States is about to become just like Japan. But it is not inconceivable. That is why buying long-term bonds now is not a crazy investment strategy, and selling them (as many companies are now doing) is not at all a sure thing.
Addendum: Another noteworthy fact about bonds is that they have recently been negative beta assets. (You can verify this fact with this link.) Their hedging properties also make buying bonds a reasonable investment strategy.