Last Tuesday morning I poured coffee and pulled up the Bank of America survey. Two hundred institutional fund managers participated. They run $517 billion between them. The question was simple. Where is the 30-year Treasury yield headed?
Sixty-two percent of them said up. They are targeting a yield of 6 percent. Only one in five said it goes back down to 4.
I read that twice. Then I read it a third time. These are not bloggers. These are the people your retirement money sits next to at the table. They just raised their hands and said the bond market is going to get worse.
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Here is what worries me. The 30-year Treasury yield already hit 5.2 percent on May 19. That is the highest it has been since July 2007. Your son is staring at a 6.65 percent mortgage right now. If the fund managers are right, that number does not come down this year. It goes up.
There is a second thing. Think about the bond fund in your IRA. It is the one the advisor told you was the safe part of your portfolio. It loses money every single time yields go up. It happens quietly on page four of your statement. You do not feel it like you feel a stock drop. But it is real money. And it is gone.
I don't think most people realize how this works. When yields rise the price of the bond you already own falls. The longer the bond the harder the fall. A 30-year Treasury moves a lot when rates move a little. The safe money is the part that has been bleeding the most. Investors are now the most underweight in bonds since June 2022.
Then Friday happened. A new Fed Chairman was sworn in at the White House. Kevin Warsh. A Supreme Court Justice administered the oath. His first official working day is today, Tuesday.
I get it. Most people do not follow who runs the Fed. But this one matters. Warsh has said he wants regime change at the central bank. He wants to shrink the balance sheet. He wants bank reserves to be scarcer. He wants tighter discipline. In plain words, he wants the Fed to stop buying bonds.
Think about the timing. The smartest money in the world just bet that long-term rates are going up. And the new Fed Chairman just walked in the door and said he is not going to be the one to stop it.
For years when bonds got ugly the Fed showed up and bought them. That was the rescue. That was the floor under the market. Warsh is saying out loud that the floor is being pulled.
I keep coming back to that 62 percent number. Sixty-two out of every hundred fund managers. These are people who get paid millions to be right. They all looked at the same chart and said the same thing. Up.
Nobody knows for sure. Markets surprise everyone. The fund managers could be wrong. They have been wrong before. I am not telling you to dump your portfolio today.
But I am telling you what I see. The mortgage your son cannot afford is not going to get cheaper soon. The bond fund in your IRA is sitting on a slow leak. And the man who could have plugged it just took the job and said he won't.
Here is the part that sticks with me. It is the quiet leak nobody talks about. It is not the headline crash. It is just the drip month after month. The smart guys see it. Your statement does not show it yet.
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I poured another cup of coffee. I sat with it. Sixty-two percent. I keep saying the number out loud because I want to remember it.
I am going to keep tracking the weekly capital flows out of these bond funds. I want to see which retail funds are hitting the redemption walls first.
More on this tomorrow.
— Lauren
Editor, American Ledger
