July 14 2016
When the yield on 10-year Treasuries finished last week at 1.37 percent, a record closing low, Barron’s called it a Kübler-Ross rally.
Elizabeth Kübler-Ross was a Swiss psychiatrist whose research identified the five stages of grief: denial, anger, bargaining, depression, and acceptance. According to Barron’s, institutional money managers have reached the final stage of grief and accepted that bond yields may remain low for some time:
“Far from irrational exuberance, many institutional investors voice resignation (or worse) to the fact that they are forced to put money to work at record low yields – 1.366 percent for the benchmark 10-year Treasury note – since that’s better than nothing, which literally is what they earn on the estimated $11.7 trillion of global debt securities with negative yields.”
The Wall Street Journal attributed record low 10-year Treasury rates to investors’ concerns about the health of the global economy, as well as “expectations that central banks in Japan and Europe will take further steps to bolster their economies, doubling down on ultra-loose monetary policies that have already helped create a record amount of negative-yielding government bonds.”
U.S. stock markets closed near record highs last week after the June employment report showed far more jobs had been created than expected. Once again, this raised questions about whether stocks are pricey in the current environment.
Barron’s explained the equity risk premium, which is the potential return investing in the stock market provides over investing in a low risk option such as a Treasury bond, is 4.6 percentage points. That’s almost the highest it has been in the past 15 years (excluding the financial crisis and the European debt crisis). However, if earnings don’t meet expectations, stocks may prove to be more expensive than they appear.
- Data as of 7/08/161-WeekY-T-D1-Year3-Year5-Year10-Year
- Standard & Poor’s 500 (Domestic Stocks)0.0130.0420.0410.0910.0970.053
- Dow Jones Global ex-U.S.-1.5-3.2-8.4-0.9-2.2-0.5
- 10-year Treasury Note (Yield Only)1.4NA2.22.735.1
- Gold (per ounce)1.127.516.93.1-2.68
- Bloomberg Commodity Index-3.710-11.7-12-11.7-6.8
- DJ Equity All REIT Total Return Index1.115.42213.811.97.4
*Indices are unmanaged and investors cannot invest directly in an index.
*Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
*S&P 500, Gold, Dow Jones Global ex-Us, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend).
*The DJ Equity All REIT Total Return Index does include reinvested dividends.
*All investments involve risk – coins and bullion are no exception. The value of the bullion and coins is affected by many economic circumstances, including the current market price of bullion, the perceived scarcity of the coins and other factors. Therefore, because both bullion and coins can go down as well as up in value, investing in them may not be suitable for everyone. Since all investments, including bullion and coins, can decline in value, you should understand them well, and have adequate cash reserves and disposable income before considering a bullion or coin investment.