In the past month, the bond market has seen a big move lower. Rates have rapidly moved higher. And quite frankly, it’s caused a lot of hissy fits.
But let’s put the cries of distress in context. Here is the 10 year swap rate in the U.S. over the past few years:
The recent move higher has been big, and it’s taken us to 1 year highs. But we’re basically in the same spot as April 2012, and I don’t recall the sky falling down back then.
The “distress” in the rates market is much more a function of reset expectations rather than a major market shift. In the context of the 1 year chart, the move looks massive. In the context of the multiyear chart though, it’s a rather standard move. In fact, even with the move higher in rates in the past month, the 10 year swap rate is still below the 2.50 level that is my technical line in the sand, above which the alarm bells in my head might get a bit louder.
In the meantime, I’d be careful extrapolating from the recent move higher. Long-term investment themes based simply on this rate move are simplistic, and likely to set up for disappointment if the rate market stabilizes. Yesterday’s strong reversal higher in Treasuries (on significant volume) could be the start of such stabilization.
This is how financial markets work. They move and shake, but rarely break. From my perch, all the hissy fits about the rates market are much ado about nothing.