This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Kass: Why I Am Buying Bonds

This column originally appeared on Real Money Pro at 9:43 a.m. EDT on Aug. 22.

NEW YORK ( Real Money) -- Longtime subscribers know my view that shorting bonds is the trade of the decade.

Back in May 2012, I gave a presentation at Whitney Tilson's Value Investing Congress in Omaha that had as its theme that the yield on the 10-year U.S. note was preposterously low and that bonds should be (recklessly) shorted.

Prior to that, I gave a lecture at Northwestern's Kellogg School of Management on the same subject.

While I believe that the inevitable move of yields is higher, the move to higher interest rates will not likely be in a straight line, and there will be trading opportunities in the interim when bonds can be rented.

After the rise in the yield on the 10-year U.S. note from 1.45% in May 2013 to 2.92% this morning (the highest yield since mid-2011) -- and this on the heels of better overnight data out of the EU and China -- it is my view that a trading opportunity is now at hand and that interest rates are likely to back off in the near term.

Below is my rationale:

1. Economic data are mixed. While some measures of U.S. manufacturing activity have improved in July, housing is about to stall/pause, and growth in the jobs market is disappointing -- the jobs being added are low-paying ones. Last week's initial jobless claims (just released) confirms my view that employment growth will be slow. Claims came in at 336,000 compared to expectations of 330,000 and 323,000 the week before.

2. Future domestic growth is expected to remain subpar. At best, a slight acceleration of real GDP from second-quarter 2013's +1.8% is seen in this year's second half. It remains my baseline view, however, that the U.S. economy is an extended period of subpar 2% real GDP growth. This will disappoint stock investors but could reward bond investors.

3. Sentiment is profoundly negative on the asset class. Back in May, not a soul dared offer the concept of shorting bonds (as the investment graveyards were filled with beaten-down and bankrupt bond bears). Now, only three months later, the call of shorting bonds is the investment mantra of nearly everyone. No doubt, poor sentiment/psychology for this asset class could take yields higher and bond prices lower, but at 2.92%, I like the entry point.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Real Money
Try it NOW

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums


Chart of I:DJI
DOW 17,830.63 +110.71 0.62%
S&P 500 2,091.94 +11.53 0.55%
NASDAQ 5,133.2860 +24.62 0.48%

Our Tweets

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs