Slower than a grass fight

Yesterday morning there was a conversation here in the office about landscaping.  One of my co-workers mentioned that he has Bermuda grass in one section of his yard that is encroaching on some fescue in another section.  His comment was that it was going to be a battle-royal to see who would survive.  My first thought was that the battle he was describing might be the single most boring battle in the history of nature.  The only thing more difficult to watch than two types of lawn-grass in a slow-motion fight to the death would be watching yesterday’s market activity.  For most of the day the entire Treasury curve was virtually unchanged and the domestic stock indices weren’t much different.  I didn’t check but coffee futures might have taken a big jump to the upside based solely on yesterday’s caffeine intake in my office. 

It was slooooow…slower than two grasses fighting.  Maybe it was this slow pace of activity that gave my brain too much free time, but as I sat here in front of my Bloomberg screens something started to seem…familiar.  It wasn’t an “a-HA” moment…it was like one of those times when you can almost remember the name of the band that sings the song you’re hearing…and it’s on the tip of your tongue…but you just…can’t…remember.  It was one of those types of things. 

 a-HA!

Today I got a clearer idea of what was buzzing in the back of my head.  I pulled up some data on the 10-year Treasury from the past few years.  Look at the 10-year yield as of May 1^st from the past three years:

01 May, 2010 – 3.72%

01 May, 2011 – 3.32%

01 May, 2012 – 1.96%

 *yields are from the closest trading date to 01 May.

The NBER says we exited the recession in June of 2009.  At that time the 10-year was trading around a 3.72%.  The further we go into the “recovery” the lower the 10-year Treasury yield gets. 

 That made me recall that the pattern over the last few years has been one where everyone explained away our poor first quarter performance by saying that they expected the growth to occur in the second-half.  Each time they were disappointed as the growth didn’t materialize and people piled back into Treasuries as a safe haven.  Global problems also added fuel to the fire in the Treasury market.  This morning I pulled up graphs on the 10-year Treasury for the past three years.  What you’ll see is that yields began to drop in the second quarter, and continued to slide into the summer.  Yields bottomed out somewhere between August and October in both 2010 and 2011. 

I’m not saying history will repeat itself…but it doesn’t escape my attention that as we start the second quarter of 2012 yields are again dropping, growth is still sub-par, and we are still haunted by global economic problems.  As Yogi Berra used to say…it’s like déjà vu all over again.

Conclusion

Currently the 10-year Treasury is up almost half a point in price to trade at a 1.82% yield.  You may not like the yields we have available today, but if history does repeat itself you might find yourself wishing you had put more money to work at these levels.  Ultimately I think it makes sense to put money to work when you have it rather than trying to time the markets. 

If you have any questions or comments on this material shoot me a message.