Interest Rates

Yield Mandala

By, 06/11/2007

For millennia, yogis, sages, Buddhas, and general seekers of wisdom have contemplated the labyrinthine passages of life's mysteries through meditation with mandalas.

A mandala is a visual image of a geometric pattern representing the cosmos symbolically: the universe from the human imaginal perspective. Mandalas are used during meditation as an object for focusing attention and finding centeredness. (For examples and the history of the mandala, click here:

Now have a look at the below chart—this is our financial mandala of the day, and we've meditated upon its beauty quite earnestly. In this time of turmoil, many have lost their economic center. We mustn't give in to the demons of fear and despair simply because of last week's big upward move in long term bond yields. Let our financial mandala bring you back to economic centeredness.

Since 2003, 10-year US Treasury Yields have spiked up over short periods no less than six times.

2003: 47%
2004 (1): 32%
2004 (2): 16%
2005: 20%
2006: 21%
2007: 16% (as of 6/06/07)

In other words, 2007's sharp upward move in interest rates isn't all that big a deal in the context of just the last five years. If you really want to see a giant move in rates, track them over the last forty years—now that is one wild ride! In the wider context of history, it looks a lot more like we're at the tail end of a big bell curve, where long interest rates are in a pattern of downward—or at best, sideways—movement.

We've mentioned TIPS (Treasury Inflation Protected Securities) spreads before in this space. According to Bloomberg, the 10-year TIPS yield has risen 54 basis points since the beginning of May, while the TIPS spread, the difference between the nominal Treasury yield of 5.15% and the TIPS real yield of 2.73%, is virtually unchanged. This essentially means inflation expectations haven't materially changed in the last month.

Though the long bond's move last week was sharp and sudden, it's so far a relatively small thing when seen in the proper context. There isn't any need for panic or wondering about the economy, inflation, and the like. The positive economic fundamentals we've continually outlined on the MarketMinder haven't changed. This supposed big bond move is really a normal bout of turbulence, not the onset of something bigger. Just like stock markets, bond markets can correct too. Maybe long bond yields head back down from here, maybe they move sideways, or maybe they tick up a bit further. Absent a truly giant move in rates, it won't change things much for stocks or the economy.

Study our mandala; meditate upon its benign message; find your peace; stay bullish on stocks.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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