I haven’t said much about interest rates lately — for two good reasons:
First, nothing has changed about my long-term forecast. I believe they’re headed higher. Heck, the 1.4 percent 10-year Treasury note yield we saw in 2012 could be the lowest I will ever see in my professional life.
Second, interest rates have just been treading water since the start of the year. We’ve been mired in a range of roughly 2.5-2.7 percent on the 10-year since mid-January. Yields on the 30-year Treasury bond have trended a bit lower, but yields on the 5-year Treasury note have generally traded flat to higher — basically, a “wash.”
But parts of the interest-rate market are stirring again — and I don’t want you to miss out on that wake-up call. These early signals suggest we could be getting ready to launch the next leg up, one that would carry us to 3 percent on the 10-year … and beyond.
|Companies in the energy sector benefit in an inflationary environment.|
A key driver of this move? The return of inflation! One of the most visible signals of that threat is the explosion we’ve seen in gold prices. Federal Reserve Chairman Janet Yellen’s cavalier dismissal of inflation concerns sent gold prices up by around $50 in a single day.
The metal has now spiked from $1,240 an ounce to as high as $1,326 — a gain of almost $100. It’s threatening to break out from a sideways consolidation pattern that dates all the way back to mid-2013, one reason I’m turning more bullish on gold for the first time in a couple of years.
As for interest rates, signals of a possible paradigm shift toward an inflationary environment are a bit less visible. But they’re clearly there.
Take a look at this chart, which shows the spread, or difference, between yields on nominal 10-year Treasury notes and 10-year Treasury Inflation Protected Securities (TIPS). You can view this spread as a rough approximation of what the bond market thinks future inflation will be …
You can see that this spread has been widening out for the past few years since hitting a low of 152 basis points (1.52 percentage points) back in 2009, the tail end of the Great Recession. You can also see on the far right of the chart that the spread is widening out once again. We’re now running at 229 points — just a hair away from a fresh 14-month high.
What does that mean? It means the bond vigilantes are stirring again! Investors are worried that Yellen doesn’t have the inflation-taming chops to nip rising prices in the bud. So they’re starting to implement strategies that would protect them from an outbreak of inflation.
Me? I believe that’s the right thing to do, too. I’m looking to add some more exposure in the precious metals for the first time in a long time, and I’m looking to target stocks that benefit in an inflationary environment. It’s no coincidence that companies in the energy sector are killing it here, or that select, highly rated industrials look strong, too.
You can find plenty of specific names in the Safe Money Report. One energy play I recommended back in March just exploded to a fresh all-time high this week, handing my subscribers double-digit open gains. Another has almost doubled in price since I first recommended it in October.
If you’re enjoying those gains, great! If you haven’t given Safe Money a try yet — but want to learn how you can protect yourself from a new outbreak of inflation — I urge you to do so now. Just click here or call us at 1-800-291-8545 to get started … before Yellen’s inflation bout gets any worse.
Until next time,