Bond Yields Collapse: Chicken Little Sells Treasuries

Chicken Little has sold half of his 30-year Treasury Bond position. Treasury bonds have soared in price in recent months; Chicken Little is continuing a multi-year move away from Treasury Bonds. Selling now feels like a bad decision as Treasuries look likely to continue to rise in price for a while as yields continue to collapse toward those of German and Japanese bonds.
Bond Yields have collapsed, Chicken Little is exiting

Chicken Little's views on Bonds continue to become more negative. Here are some of the highlights over the years starting with the most recent.

2019: Chicken Little sells bonds.
2016: Chicken Little no longer loves bonds.
2015: Chicken Little loves bonds. Bonds are hated.

Chicken Little has history with Treasury Bonds

2019: Chicken Little sells bonds.

Long-term US Treasuries bonds have returned almost 15% over the last year, crushing the return on stocks. As bonds have soared in price, people have become much more optimistic about bonds. People are buying bonds now, believing that prices will continue to rise.

A little over six months ago, the consensus view was that bonds were bad investments. For example, the Wall Street Journal ran this headline on October 18, 2018 "Why Bond Yields May Keep Climbing." 

When the world hated Treasury bonds in the fall of 2018, Chicken Little was heavily invested -- 36.25% of the portfolio was in the 20+ year treasuries and another 38.25% in intermediate term Treasury notes: (click for october 2018 positions).

Chicken Little owned tons of unloved Treasuries

Chicken Little has moved 20% of the portfolio from 30 year treasuries to cash. It definitely feels to Chicken Little that bonds can go higher as US yields close in on those in Japan and Germany.

Chicken Little is coming to fear an inflationary future and has no stomach for the huge long-term Treasury position any more. In short, Chicken Little is afraid of owning the safest asset in the world.

Is selling US 30-year treasuries at 2.5% yield a good decision? It sure feels bad today. It feels like the US Federal Reserve will have to cut rates to zero again, and thus bonds prices will rise. At some point, however Chicken Little believes real interest rates will rise and bond prices will fall.

So selling US Treasuries is not an obvious good decision with regard to future returns. What is clear, however, is that cash is less risky the long term Treasury bonds.

2016: Chicken Little no longer loves bonds.

Three years ago, Chicken Little announced a major change in his view toward US government bonds. (Read post: CHICKEN LITTLE SEES THE END OF HIS LOVE AFFAIR WITH TREASURY BONDS)
2016: Chicken Little stopped buying bonds

On August 10, 2016 Chicken Little began a slow, methodical process of decreasing exposure to Treasury bonds. "Chicken Little has sold some Treasury Bonds. Furthermore, Chicken Little will not buy any more 30-year Treasury Bonds for the foreseeable future."

To date, that is the best call in the history of Chicken Little's investment reports. Chicken Little's decision was almost perfectly timed. After years of strong gains, US Treasury bonds have returned almost exactly 0% over the last three years.

Total return on Treasuries has been 0% since 2016

2015: Chicken Little loves bonds. Bonds are hated.

In 2015, Chicken Little loved bonds. The first Chicken Little investment column stated, "I own U.S. Treasury bonds because I believe that the U.S. economy is still weak enough that the Federal Reserve interest rate increases will come later than expected." Click for article.

Buying bonds in 2015 was very close to free money. You see, 100% of economists believed buying bonds was stupid (click on headline above). There is no better wager in the world, then betting against the unanimous opinion of economists. When 100% of economists tell you anything, believe the opposite.

June 20, 2019

Dow Jones Industrial Average: 26,753
30-year US treasury yield: 2.49%
Bitcoin: $9,500

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