On the eve of what may be the launch of the next big thing in monetary policy, we humbly ask: What have we learned this year?
One lesson is that while the future’s always unclear, clues about what’s coming are occasionally dispatched. Alas, those clues are often far more compelling in hindsight than they are in real time.
A case in point: Mr. Market snookered us back on June 13 of this year, when the 10-year Treasury yield briefly traded at 5.3%. Yes, that now looks pretty good when it’s lined up next to the 4.46% yield at Friday’s close. Back in June, your editor had an idea that something was bubbling in the credit markets, but we were less than convinced that buying 10-year Treasuries at a 5.3% was a no-brainer.
Three months later, it’s clear that we should have been leveraging ourselves to the hilt to snap up the now-obvious rich payouts guaranteed by our friends in Washington. Indeed, bonds have outperformed stocks handily in the last three months by a robust margin. The iShares Lehman Aggregate Bond ETF is up around 4% on a total return basis through Friday’s close from June 13 vs. a 1.5% loss for the S&P 500 Spider ETF.