“Hello David Greetings! I am a bit lost on the US Govt Bonds price action of late. Yes, there is fear of impending rate hikes but the economic stats are mixed and Yellen has been at pains to say she will not act till her criteria for tightening are met. Also, typically when Stock markets have gone down the Bonds have tended to gain but lately they seem to move in tandem. Do you have any plausible explanation for this? Are the markets regardless of Yellen and numbers beginning to unwind the long term bull cycle? Would appreciate your thoughts!”

David Fuller's view

Greetings, and thanks for your question.  I have partially answered it in my reply to Email 1 and lead article above.  Additionally, I would add that emotions can be a big factor in markets over the short to medium term, contributing to volatility.  I imagine you saw Janet Yellen’s comments which I posted in May 6^th, and quoted again above.  I maintain that the greatest risk by far is in bonds.  Interest rates are near record lows and will not continue to decline as economies recover.  Most bond investors know this but it is hard to leave a profitable market while it is still performing.  This is why fixed interest yields are likely to jump higher as the cycle turns and more persistent profit erosion occurs.