Macro Monitor

May was a dynamite month for bonds, with total returns of 9%-10% registered for most long issues. Long zeros racked up gains in excess of 20%. The bond market now is ahead of itself although the Major Trend remains bullish.

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About half the April gain to peak levels was lost in the last few days of the month. Short-term, a long T-bond trading range of 11.30%-11.70% is expected, but the Major Trend remains bullish. A break in the deficit impasse could kick off a new upsurge.

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We remain bullish short-term, long-term and very long-term. T-Bonds are expected to move to 11.25%-11.50% before April is over.

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Bonds weren’t more fun in February. 5%-6% declines for the month were the rule at the long end. The expected correction in the bond market is underway and could be about over.

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Bond returns are not expected to keep pace with stocks over the next 6-12 months. Shorter-term we remain cautious toward the bond market, but would become aggressive should it appear Reagan and Congress are coming together on the deficit.

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While now uneasy about the shorter-term outlook for the bond market, our minimum 1985 target is 10%, perhaps even 8%-9% if the politicians really come to deal with the deficit.

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Our 1984 target of 11.5% for T-Bonds was achieved. Short-term we don’t know what to expect, but a consolidation or correction would not be a surprise.

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We are reprinting this article authored a few months ago by this true legend in his own time. Buffett presents two fantasy plans by which to deal with the current deficit situation, employing them as a device to demonstrate the absurdities and dangers inherent in current policy. Do you want to know why long interest rates remain so high? Buffett explains it and I totally agree.

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The pre-election target of 11.5% for T-Bonds was essentially achieved. Now the market looks overextended and a period of consolidation or correction is expected in November. Ultimately though, the upward move is expected to continue.

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We look for higher bond prices by the end of October, once the Treasury financing is out of the way. Pension fund lock-up buyers remain a strong positive factor. But what is really needed is some post-election indication of political fiscal responsibility.

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In some ways, the bond market is more impressive than the stock market. We continue to think it may be a brand-new ball game for a while with a growing number of new players. Throw out your old rule books? Our pre-election expectation for T-Bonds is 11%-12%.

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In many ways the bond market is more impressive than the stock market. In some ways I think it is a brand-new ball game with a growing number of new players. Throw out your old rule books. We have raised our maximum pre-election expectation for T-Bonds to 10%, up from 11%.

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T-bonds at their recent lows were down 30% from peak levels. Yes, it has been a bear market, but it may be about over. At minimum, a move to a 12% level is expected before election day.

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T-Bonds at their recent lows were down 30% from peak levels. Yes, it has been a bear market, but it may be about over. At minimum, a strong move to 11%-12% levels is expected before election day. Is the five-point move in recent days the 10 beginning of this? Maybe …

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I expect Zeros will make a bigger splash in pension circles over the next twelve months than did GIC’s, Index Funds, Venture Capital or Real Estate. Dr. Harold Ehrlich does not go quite that far, but he thinks Zeros should “be recognized as being among the most important financial instruments ever invented.”

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T-Bonds broke the August 1983 lows, but municipals and corporates still seem to be holding. Pessimism is rampant. Investors should consider buying T-bonds now. The biggest risk may now be not owning bonds. I expect a good rally momentarily.

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T-Bonds broke the August 1983 lows, but municipals and corporates seem to be holding. Pessimism is rampant. Investors should consider buying T-Bonds now. The biggest risk may now be not owning bonds. Positive action on the deficit could kick off a large rally.

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The bond market has come back down in our 12% (T-bonds) buying zone. We would buy Zeros and Long T-bonds. A short-term clear break to new lows would not surprise us, but our minimum 1984 Long T-bond target is 10.5%, maybe lower if significant action is taken on deficit.

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After drifting lower in December, the bond market drifted higher in January. Corporates turned in the best showing, with two-point gains fairly typical. Municipals were up 1 1/2 points while Long T-bonds moved up about a point. Yields declined 20 to 40 basis points, depending on the type of security.

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The bond market remains in our buying zone. We expect last summer’s lows to hold, and very soon, a sharp upward move in bond prices.

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