Market Commentary

The Fall Of Bonds

The Bond market has been referred to as a leading indicator for stocks and this week bond prices have fallen hard with yields rising sharply. The cause was twofold, Japan said they would cut their form of QE, trimming their bond buying program, and there was a rumor that China is considering cutting back on their purchases of U.S. Treasury and/or reducing their holdings.

Some of the most well-known experts are sounding warning bells that we are in a bond bear market and that could end the bull market for stocks. Then again other experts state that if bond holders flea bonds they will naturally turn to stocks pushing prices even higher.

No one really has the answer. We can observe a bond market weakening and history tells us that when that happens stocks begin to falter. The problem with history is that we have never had bond yields so low for such a long period so there is a lot of speculation as to what this means for stocks when rates start to rise. The FED has been pushing up interest rates for well over a year and the stock market rallied. That is in the face of conventional wisdom where stock prices are supposed to fall in a rising rate environment. So much for convention.  

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