The Bondmageddon Zone of Death

Click to enlarge.

The 5-year treasury yield is shown in red.
The 5-year CD rate of national banks is shown in black.
The difference (when noteworthy) is shown in pink.
The bondmageddon zone of death is shown in green.

What's the bondmageddon zone of death? I believe that it is a special burial ground where misguided bondmageddon theories go to die.

I say this somewhat tongue in cheek of course. Unlike most these days, I can't say with any certainty where yields are headed. I can say that I see little evidence here that the recent trend higher in the 5-year treasury yield is sustainable though. I offer the following as my reasoning.

If the economy is so healthy and treasury rates are therefore rising in response, then why isn't it forcing banks to pay more interest on CDs?

How are banks getting anyone to buy the typical 5-year CD when the 5-year treasury yields so much more?

I offer an alternative theory. We're in Bondmageddon 2.0 and it will end much like Bondmageddon 1.0 ended. This coincides well with my long standing belief that we'll be stuck in ZIRP far longer than most believe possible.

February 2, 2011
More Dangerous Advice from Jeremy Siegel

Although Tips may compensate holders for future inflation, the interest rate that they offer is far too low to offset the risk of rising rates.

Note where February of 2011 falls in my chart above. Thanks for the Bondmageddon 1.0 warning Siegel!

What would we do without him? He waited until rates temporarily spiked higher and then warned us that rates might rise. In hindsight, kind of a crappy plan.

Let's apply this same line of reasoning to the weather.

I've noticed that the weather has been getting colder lately. Current swimwear has far too little insulation to offset the risk of falling temperatures. I therefore recommend that you purchase fully insulated GORE-TEX® swimwear right now in preparation for next summer's ice age! You can't ever be too insulated from risk! Lock in that protection right now before the next person does!

This is not investment advice. As always, just opinions. And sarcasm. Mustn't forget the sarcasm. Please factor the latter in should you choose to actually purchase swimwear based on what I've written here. Heaven help you, lol. :)

Source Data:
St. Louis Fed: Custom Chart