U.S. Treasury Bonds saw a drop in price and an uptick in yields today, meaning the bonds cost less to buy and provide a higher yield than they had before. This is a good thing, or at least a sign of good things. The bond market has been very expensive recently, due to the financial crisis. Because the U.S. Government is still seen as one of the best investments on the market, people still buy U.S. bonds, despite its credit rating drop last year from AAA status to AA status. Still, not many people believe the U.S. is going to collapse anytime soon, or not before the 10 year term of their bonds, and since we have that pesky “No Default Allowed” clause in the Constitution every expert still expects U.S. bonds to payout.
Expensive bonds with low yields indicate a bad investment market. If the government can charge a lot of money for bonds and people will still buy them it means people don’t want to put their money elsewhere. Now, with the Treasury issuing cheaper, higher yield bonds, it shows that the Treasury believes the economy is good enough that people will start going elsewhere with their money, like say the stock market. What does this mean for you? Well if you are investing money right now, bonds are slightly better than they were, but what this really signals is that the stock market will likely be kicking back up soon (not that the DOW isn’t already above 13,000), so if you’ve been waiting on some stocks to buy this might be your last opportunity before the market comes back to life. Not that I recommend general market activity to influence individual stock purchases, but for mutual funds and the like, general market activity is more important.
For the rest of us who aren’t investing it’s another signal that the economy is likely getting better, although with the way economic measures work these days, we’re usually six months to a year down the road before anyone calls anything a “recession” or a “recovery”. The hope is though, that things really are getting better, and if money really is starting to divert from the bond market into the stock market, it means more money is going toward capital business projects, which are the things that create jobs. So here’s hoping the bonds get cheaper and cheaper.
