Safe-haven assets are finally doing their job...
That was the takeaway from the DailyWealth I wrote last week. Gold and U.S. Treasury bonds started moving higher as the banking crisis unfolded.
But there's more to the story. So today, we'll look at another major takeaway from the turnaround...
You see, Treasury bonds' recent move was rare. And according to history, it could signal that the peak in interest rates is behind us.
Let me explain...
As banking uncertainty ramped up, investors fled to safe assets.
That meant a lot of money moved into U.S. Treasury bonds. The cash influx caused prices to rise. And yields plunged – because higher bond prices mean lower yields.
The craziest decline happened in two-year Treasury bond yields. Those bonds yielded 5.07% on March 8. But just three trading days later, the yield fell below 4%. Take a look...
The severity of this decline can't be overstated. U.S. Treasury bonds are supposed to be "boring," slow-moving assets... especially short-term two-year bonds.
But the two-year yield plunged 109 basis points in just three short days. And that's one of the biggest three-day drops on record.
Specifically, we've seen only 10 other declines of that magnitude in roughly 50 years. Nine of them happened between 1980 and 1982. And the last one was in 1987.
The early 1980s happened to be a high for interest rates. And betting on lower rates to come would have been a good choice in 1987, too. Take a look...
It's rare for two-year yields to fall this far, this fast. But according to history, when they do, it's a sign that the overall trend in interest rates is reversing.
It might seem crazy to expect interest rates to go much lower from here. After all, rates are nowhere near as high as they were in the 1980s.
But today's level of around 5% is the highest in more than 15 years. That means we could see a big decline in the coming months.
Plus, any additional market turmoil could push more investors into safe-haven assets. That would mean buying Treasury bonds... which would lead to further declines in interest rates.
Sure, that would be bad news for riskier assets like stocks in the short term. But lower rates are a boon for the stock market in the long term.
This is a trend you'll want to watch closely in the coming months. Few expect dramatically lower rates anytime soon. But history says it's the smart bet from here.
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