The Safety Trade is Still Working
In early December, I posted these two charts and laid out the bull and bear case for U.S. bonds:
![Bond Bear Case Bond Bear Case](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F3a9418d6-9a27-4805-a159-f2eb8ceecf38_1752x626.png)
Bonds bulls saw the bounce in yields over the second half of 2019 as a mean reversion. They expected rates to fail at their most recent breakdown level, and did not want to see rates get above 2%. The key level for bears was the area near 1.5%, where yields have found support over the last decade.
Since that post, bulls have had the upper hand. U.S. 10-year yields have fallen below 1.5%, challenging the lows set in 2016.
![TNX TNX](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Febfa962b-cfad-452c-9c21-d2853caff4f7_1766x655.png)
Similarly, yields on 5 and 30-year Treasury bonds set new lows on Friday. For 5s, it’s the lowest since the 2016 election. For 30s, it was the lowest since, well, ever.
![FVX FVX](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F9a106f09-8ca1-44f7-85fa-38237a61fa17_1768x656.png)
![TYX TYX](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F5e05af79-ab9b-4311-8aee-d83dd05135bc_1766x656.png)
Bonds aren’t the only safety trade that’s worked despite a rapidly appreciating stock market. Gold prices have rallied in recent months, climbing almost 15% since the end of November to their highest level since 2013. In fact, Gold has outperformed U.S. equities over the last year.
![Gold Gold](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fddd43898-23b3-448d-9bcb-4265e626a270_1767x656.png)
And within equities, defensive sectors have led the charge in 2020. Among the top 3 performers so far this year, Utilities and Real Estate rank first and third, respectively. Both managed to set new highs last week.
![Utilities Utilities](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Febcb065b-133e-44c8-b423-b232c9bc276f_1766x656.png)
![Real Estate Real Estate](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F60a3205e-0814-4daf-b87e-5bc1903001cf_1763x652.png)
With stocks, bonds, and precious metals all up since December 31st, it’s been a good start to the decade. Just don’t expect the good times to last – they can’t all go up forever.
The post The Safety Trade is Still Working first appeared on Grindstone Intelligence.