How Long Will it Take Before Bond Yields Hit Bottom?

A skilled magician knows the art of distracting the audience is just as important as mastering the trick. And the magicians on Wall Street have once again successfully deflected the investing public’s attention to U.S. stocks near record highs.

You see, Wall Street doesn’t want to focus on the reality that long-term U.S. Treasuries have crushed the year-to-date (YTD) performance of just about every major asset category from the S&P 500 (SNP:^GSPC), gold, and even global real estate.

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With bond prices heading up and bond yields heading down, how long will it take for yields to finally hit rock bottom?

JC Parets at Eagle Bay Capital notes:

“Historically, the bottoming process for U.S. interest rates takes 10-15 years. Think about this: the bottoming process in rates during the 1820s-1830s took over 10 years after the Erie Canal was finally completed changing the landscape of America forever. The bottom in rates during the 1890s-1910 took about 15 years and wasn’t until after the panic of 1907 that rates really started to rise. Then the bottom in rates during World War II took another 10-15 years to bottom out. So why should this time be different?”

The chart below plots the year-to-date performance of the S&P 500 (NYSEARCA:IVV) against the iShares long-term U.S. Treasury ETF (NYSEARCA:TLT), the SPDR Gold Shares (NYSEARCA:GLD), and the SPDR Global Real Estate ETF (NYSEARCA:RWO). As you can see, the gap of outperformance by long-term U.S. Treasuries over other major asset classes continues. If this is your definition of a bond market (NYSEARCA:AGG) crash, go back to sleep.

Among top performing funds in 2014 are the same bond ETFs that Wall Street said would crash and burn; the 2x daily leveraged ProShares Ultra 20+ Yr. U.S. Treasury ETF (NYSEARCA:UBT) and the 3x daily Direxion Daily 20+ Yr. Treasury Bull 3x Shares (NYSEARCA:TMF). UBT is +41% while TMF is ahead by +65% YTD.

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