US Treasury yields pushed to new cycle highs last week despite another Fed interest rate pause

 Cash was about the only thing which did better week over week on Friday. Treasuries and bonds generally took a beating, as did stocks.

The UST yield curve aggregate closed up a net 1.27% week over week on 9/22, to an average of 5.0707692, the highest Friday close yet for this cycle.

Yields in the aggregate made a new high for this cycle on Thursday, for an average of 5.0915384. 

Here's the year-to-date performance for key categories using some commonly used Vanguard funds:

Treasury Market VFISX 0.66% VFITX -0.70% VUSTX -5.57%;

Investment Grade Market VFSTX 2.08% VFICX 1.32% VWESX -0.83%; 

Total Bond Market VBTLX -0.03% (+0.44% previous week);

Cash VMFXX 3.58% (3.48% previous week);

Total Stock Market VTSAX 12.95% (16.45% previous week).

 

 

Let's check in on the US Treasury yield curve and year to date performance of selected Vanguard funds

The UST yield curve aggregate closed up a net 0.68% week over week on 9/15, to an average of 5.006923, the first Friday close this cycle in the 5s.

 

As expected, fixed income isn't doing well in this rising-rate environment. Stocks have done surprisingly well this year, and even cash has beaten bonds.

 

YTD performance:

 

Treasury VFISX 0.68% VFITX -0.26% VUSTX -4.12%;

Investment Grade VFSTX 2.21% VFICX 1.73% VWESX 0.00%; 

Total Bond VBTLX 0.44%; Cash VMFXX 3.48%; Total Stock VTSAX 16.45%.

 

Other popular vehicles: 

 

$SPX 16.37%

$AGG -2.12%

$TLT -8.38%. 

 

Long-term investment grade bonds for long term investors vs. the S&P 500

Return for VWESX, Vanguard's Long-Term Investment Grade Bond Fund, inception July 1973-December 2022:

7.48%.

Return for S&P 500, average nominal, dividends fully reinvested, July 1973-December 2022:

10.61%.

Long US Treasury and Investment Grade bonds both made new 52-week lows again last night

Yippee-ki-yay.

 

The Great Long Term Investment Grade Bond Debacle of 2022

Safe havens aren't supposed to do this.

Long term return for VWESX since inception in 1973 near the end of 2018 reached north of 8%.

In 2022 ytd return is -27.28%.

The whole spectrum of bonds as represented by VBTLX is down ytd 14.79%.

Traditional investors with a 60/40 portfolio are down over 20% through yesterday because stocks and bonds both are falling.

Cash is king again.

 

Two conditions need to develop before buying bonds

. . . the trend in the bond market . . . still looks bearish. ...

As yields rise and inflation eases, the relative allure of bond payouts becomes attractive, in absolute and relative terms vs. other assets.

James Picerno, here. 

Yields are indeed rising, but prices are still falling, so no, not quite yet. Bond prices ought to stabilize when inflation finally eases, and so far prices haven't stabilized.

VWESX is instructive.

There's just a handful of years back in the 1980s where the average price of this very long term investment grade bond fund had been below $8 like the current price is today.

That's one reason why Jeffrey Gundlach rightly says that bonds are "wickedly cheap".

But VWESX only just got there on September 20th, hitting $7.99. We're down to $7.88 this weekend.

Meanwhile yields across this investment grade spectrum are bunched up in the fours, with only about 55 basis points difference between the shorts and longs, and intermediates effectively paying the same as or more than longs.

Prices on the longs need to fall a lot more before making them more attractive than intermediates if you are going to settle for only similar yield.

After all, the long term average return of investment grade longs is north of 7.5%, not in the fours.

But what the hell do I know?

Invest, or don't, at your own risk.

Vanguard's Worst Performing Bond Funds In 2013

Long Term Treasury Fund, VUSTX:                          -13.03%

Long Term Government Index Fund, VLGSX:     -12.74%

Long Term Bond Index Fund, VBLTX:                       -  9.13%

Inflation Protected Securities Fund, VIPSX:          -  8.92%

Long Term Corporate Bond Index Fund, VLTCX: -  6.86%

Long Term Investment Grade Fund, VWESX:       -  5.87%

And as badly as they have performed, I don't see a net asset value for any fund which represents a bargain: they all still look too expensive to me.