Bonds are Breaking Down All Over

It looks like the Great Bond Reallocation of 2013 is real. The Treasury bond market is getting absolutely hammered this morning, the ten-year yield breaching 2.00%. That smashes the 1.40%-1.90% band, which has imprisoned the bond market for the past year.

The immediate trigger was the release of absolute blowout December durable goods figures this morning. They came in at a red hot 4.6%, versus an expected 2.0%. It is clear that companies are ramping up capital investment and hiring, now that the shackles of the presidential election, the fiscal cliff, and the debt ceiling crisis, have been thrown off. We?ll see the other shoe fall on Friday, when the January nonfarm payroll is released, which collapsing weekly jobless claims are predicting will be surging as well.

Cash flows into equity mutual funds and ETF?s for January have already exceeded $55 billion, and will easily close out the month as the largest in history. Yet, the move has been so fast, going up virtually every day this year, that many investors have been left on the sidelines.

Much of this money is coming from cash accounts that were topped up during the tax loss selling at the end of 2012. But there is no doubt that a major chunk is now coming out of bonds. That is what the market is screaming at us loud and clear today.

I don?t expect an immediate bond market crash here. We?ll more likely see a move up to a new trading band of $1.90%-$2.50%. So there is plenty of time to trim back positions. But the long build up here is so gargantuan, it could take 20-30 years to unwind, as it did last time, from 1948. The message here is that you should be slamming every bond market rally for the rest of 2013.

I am posting yesterday?s yields from a range of high yield instruments so I can look back on my own website in five years and see how insanely low they once were.

(TLT) ? 2.66% iShares Barclays 20+ Year Treasury Bond ETF

(MUB) ? 2.89% iShares S&P National AMT-Free Muni Bond ETF

(LQD)? – 3.83% iShares iBoxx $ Investment Grade Corporate Bond ETF

(HCN) ? 4.70% Health Care REIT, Inc.

(AMJ) ? 5.35% JP Morgan Alerian MLP Index ETN

(JNK) ? 6.78% SPDR Barclays High Yield Bond ETF

TNX 1-25-13

TLT 1-25-13