Top 10 Extreme Bond Indicators

By James Debevec  JUN 05, 2012 11:35 AM

When bond yields go down, stocks go up.

 


MINYANVILLE ORIGINAL Last year I wrote 15 articles which were extremely bearish on commodities.  Due to commodities sky-high valuations, there was no shortage of source material to obtain inspiration. Over the last 13 months, the money has flowed out of commodities (now down 25%) and into bonds. This year the easy articles to write are about bonds. We are living in fascinating times with at least three of the four major asset classes (stocks, real estate, and now bonds) reaching all-time valuation highs over the last 13 years. Without further ado, here is a list of 10 bond indicators which hit extreme levels last week.

30-Year Bonds

Biggest 12-month declines in yields (data starts in 1857):
 


Biggest 252 trading day declines in yields (data starts in 1977):
 


Lowest yields as of last day of year (data starts in 1798):
 


Bond yields obviously bottomed that year and went up 429% over the next 32 years. OK, this is cheating a bit here as the year isn’t over yet. However, it does serve to show what has happened when bond yields were at these levels.
 
Monthly declines in yields over 11% (data starts in 1857):
 


The 1980 instance was interesting in that the US was in a recession and the stock market just had a quick 17% correction before having one more final up leg of the bull market
 
Biggest three-day declines in yields (data starts in 1977):



10-Year Notes

Lowest Yield of all time:



Biggest 252 trading day decline in yields (data starts in 1962):



The 10-year note has now dropped the most in 252 trading days (i.e. one year) in history. It has dropped 51% over the last year. The previous record was Dec 23, 2008 (-49.53%). Note that the 10-year bond bottomed on Dec 18, 2008. Yields then went up 80.6% over the next 13.5 months.
 
Top 10 biggest drops in yields over 12 rolling months (data starts in 1925)

Six of top eight were the last six months:



You can see from earlier in the article what happened after the 2008 and 1986 signals. As for the May 2003 signal, stocks went up 63% to their October 2007 peak without even having a correction.
 
Biggest monthly drops in the 10-year note yield (data starts in 1925):


 
Biggest drops in 10-year note yield over a three-trading-day period (data starts in 1962):



In summary, when bond yields have declined rapidly, buying stocks has been the way to go. Much of this data goes pretty far back in most instances so these are very robust indicators. While many market commentators are saying that bonds are signaling that one should sell stocks, the actual data suggests otherwise.
No positions in stocks mentioned.

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