Jul 082013

Called a “great rotation” from bonds to stocks, the investor money has been consistently turning away from buying US Treasury bonds— resulting in conditions that lead to higher mortgage rates for consumers.  From MarketWatch.com:

The “Great Rotation” from bonds to stocks is well underway. It happened faster than anyone could have predicted, but the exodus from bond funds has been eye opening, almost more eye-opening than the reduction of wealth that has occurred between May and July in both U.S. bond funds and credit funds.

According to the U.S. Department of the Treasury, the public owns about $1 trillion in long-term Treasury bonds (most U.S. debt is shorter term). Using the iShares Barclays 20+ Yr Treas.Bond ETF TLT +0.97% , we can evaluate the percentage change in the value of long-term bond holdings that exist both in bond funds/ETFs and individual bonds. Year-to-date, TLT is down about 12%, which translates into a $120 billion reduction in wealth for bonds investors since the beginning of the year.