Bloomberg deliberately show to us this chart where the yields a were nearing 2008 high when it was on the brink of the Global Financial Crisis. They love showing highly graphical pieces of data or charts that play with emotions telling you that something is brewing especially when markets are choppy.
They love to pass the message to you subliminally asking you to think for yourself what you should do during these choppy times. Therefore, being a well-informed investor is important where you should be able to identify these issues as noise in the markets.
Yield and Markets
Yields can be a sign of bad economy but also good economy.
When a country’s economy is bad for example when there was the recent scare in Russia on sanctions, we see yields spike due to the uncertainty and this the most common phenomenon of rising yields.
But at times when the economy is good, yields go up as well because there are just too many investors seeking the same pile of good stuff to put money into.
Selling in the stock market can happen concurrently when yields rise. We see in these couple of weeks because equity money makes its way into the bond market assuming that bond has more of a locked in gain and higher in terms of stability compared to equities.
For an investment manager, you could easily buy US$ 1 billion of bonds easily but not quite for equities as you would shake the counter by quite a bit.
Yields are A Funny Story
Yields somewhat possess the goldilocks behavior. It shouldn’t be too hot (high), too cold (low) but everything has to be just right. 3% on the 10-year yield for US Treasury is what many investment manager says a psychological barrier.
Take our MGS 10 year yield alone, the number was 3.5% during the 2016’s low and 4.2% at the current moment. Obviously when 1MDB’s non-sense came out it spike to 4.4% which typically reflects fear and credibility for the Malaysian government.
Comparing that to what it is now, the economy had turned much stronger and the ringgit had stabilized. Investors are seeking MGS once again and even liquidating some equity assets to be placed into the bond market.
Yields at 2008 High?
We certainly think that the Bloomberg’s graphical was over-proposing that bad times are coming. The reason we are seeing this number and it’s not alarming that what it was in 2008 was indeed we are at different times.
Let it be QE’s money being released into the system and never being able to be recovered, the investment community as a whole are definitely twice as rich as are they were 10 years ago.
The amount of money in the system just proved to you that more capital is starting to get involved and more investors are gaining traction returning to the markets.