Security Trade Ideas (STI)
March 2021
The Bond Market Basics
Education
“EXPANDING YOUR MIND WILL RESULT IN EXPANSION OF YOUR WALLET.” Nasreen
The rapid rise in 10-year Treasury yields has been pressuring growth stocks for a few weeks, and yields soared Thursday as Fed chief Jerome Powell signaled he wasn’t too concerned about bond moves.
As an investor or a trader, we need to know the correlation between bonds, economy and the stock market. The bond market can signal a recession, a recovery and a boom in the economy.
Treasury yields swung higher last week amid hopes for stronger economic growth and rising inflation. The 10-year Treasury yield spiked, closing at 1.55%. Despite the recent sell-off that sent Treasury yields to their highest point in a year, bonds remain unappealing and should be avoided, legendary investor Warren Buffett said.
A healthy economic recovery is necessary due to the Corona Virus pandemic. The Fed has committed to keeping its target rate for federal funds at zero, and it will probably stay that way for a long time as part of their plan to maintain a healthy economic recovery.
More stimulus and the accompanying higher national debt will place upward pressure on inflation. Consequently, long-term interest rates, including the benchmark 30-year fixed rate, will be rising.
Lawrence Yun, chief economist for the National Association of Realtors in Washington, D.C. envisions that benchmark rate averaging 3 percent in March before creeping up to 3.2 percent by summer and hitting 3.5 percent a year from now.
Since its 2021 peak in early February, Russell growth 2000 (IWM), an index of smaller capitalization growth stocks, is down more than 5%.
The Vanguard S&P 500 Growth Index Fund ETF (VOOG) is down about 4% from its yearly peak hit around the same time.
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