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Bonds No Safe Haven from Stock Market Risk

By Elliott Wave International

Two months ago, Federal Reserve Chairman Ben Bernanke said he was puzzled by the upward surge in Treasury yields. And bond yields are even higher now, reaching a two-year high on August 15.

But the rise in bond yields – and the concomitant drop in bond prices since they move inversely to yields – is no surprise to EWI analysts. EWI’s June 2012 Special Report on bonds noted: "If rates do begin to rise as we expect, most observers will probably be fooled. Bulls on the economy may take the new trend as a sign of economic expansion."

Indeed, on August 15, the financial media linked the spike in U.S. Treasury yields to economic improvement:

[B]ond prices tumbled after [the release of] stronger-than-expected economic data … .

— Wall Street Journal, August 15

U.S. Treasurys yields rose to their highest in two years on [August 15] after data showed that the number of Americans filing new claims for unemployment benefits fell to a near six-year low … .

— CNBC, August 15

Also note that the August 15 plummet in bond prices occurred on the same day that stocks took a triple-digit dive. So much for the mainstream idea that a portfolio should include bonds to balance stock market risk. In 2002, when Robert Prechter’s financial best-seller Conquer the Crash was first published, he warned of what to expect in the kind of financial environment that we have now:

Conventional analysts who have not studied the Great Depression or who expect bonds to move "contra-cyclically" to stocks are going to be shocked to see their bonds plummeting in value right along with the stock market. Ironically, economists will see the first wave down in bonds as a sign of inflation and recovery, when in fact, it will be the opposite.

Conquer the Crash, second edition, p. 145

The lesson? If we are now in the early stages of a financial environment that is similar to what unfolded during the Great Depression, then it would serve investors well to learn what happened to bonds from 1929-1932.

How can you do that?

EWI’s most recent publications tell you how the financial lessons of the Great Depression apply to today, and they give you an idea of how high bond yields could climb.

More than that, you can find in-depth analysis of the sweeping economic trend that could surpass the severity of the Great Depression.

Bonds just hit a two-year low. The impact on your portfolio may be significant, and the significance for our economy substantial. Elliott Wave International has released a special report on bonds. You can see a part of that report now — FREE! See below for full details.


New FREE Report: 3 Dangerous Myths About Rising Bond Yields

More than a year ago, in the face of fierce opposition from the bond bulls in the forecasting industry, Elliott Wave International issued this contrarian forecast: "The bull market in the bond market is aged and ripe for a reversal. Generally speaking, if you are invested in long-term debt, sell it." Today, EWI has updated that original market-beating report with a vital four-page bulletin: 3 Dangerous Myths About Rising Bond Yields. Read it now for free >>

This article was syndicated by Elliott Wave International and was originally published under the headline Bonds No Safe Haven from Stock Market Risk. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

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