Bonds: The Underestimated Market - The NEST Edge
The NEST Edge
The NEST Edge is a monthly webinar hosted by NEST Financial Founder, Dan Dillard, with CIO and Partner, Sean McDougle. Together they discuss what the markets and economy are currently doing and add their outlook on portfolio management. You can watch this month’s NEST Edge on our YouTube channel.
March 2021
In this NEST Edge segment, Senior Partner Dan Dillard and Chief Portfolio Manager Sean McDougle discuss the big narrative right now: how the equities world finally awoke and decided it was the time to start worrying and discussing rising Treasury yields.Highlights include:
What have yield been doing and why it matters
How markets are doing compared to the market dip in March 2020
How treasuries effect the equity markets
Money flow and why it matters
Clouds in the summer of 2021
What NEST portfolio are doing and what we are looking towards
A Letter from Sean
The NEST Edge
Monthly Market Insights from NEST Financial
The NEST Edge is a monthly webinar hosted by NEST Financial Founder Dan Dillard and Sean McDougle, Chief Investment Officer and Partner. Together, they break down the latest developments in the markets and economy, offering insights into portfolio management and investment strategy. You can watch this month’s NEST Edge on our YouTube channel.
March 2021 Recap
In this month’s segment, Dan and Sean dive into the biggest market narrative right now: the sudden focus on rising Treasury yields and their impact on equities.
Key Highlights
What Treasury yields have been doing—and why it matters
How markets compare to the dip in March 2020
How rising Treasury yields affect equity markets
Understanding money flow and why it matters
Potential clouds on the horizon in summer 2021
How NEST portfolios are positioned and what we’re watching next
What Rising Treasury Yields Are Telling Us
You’ll hear dozens of theories about why the equities world suddenly woke up and decided now was the time to start worrying about rising Treasury yields. But since we at NEST have been expecting this since summer 2020, I’m going to cut right to the heart of it and explain why this matters.
Growth and inflation are surging upward, and in that environment, US Treasury yields go up. It’s that simple. The hard part is identifying the direction of growth and inflation—but with the data we follow, this has been a pretty easy call to make.
Now, why does this matter? And what does it mean for you?
The “yield” is the percentage of an investment’s price paid back in dividends. For example, if an investment costs $10 and the dividend is $1 per share, the yield is 10%. Treasuries are bonds issued by the US government, and many interest rates—like mortgages—are based on the 10-year US Treasury yield. When yields rise, so do interest rates. And that’s not necessarily what you want to see in a fragile economy.
So why are yields rising, seemingly out of nowhere?
They aren’t.
The yield on the 10-year US Treasury bottomed out in July 2020 and has been steadily climbing ever since. If this caught anyone by surprise, they need to get their vision checked—and I’m half blind.
Yields are rising because the expectation is that the economy is going to start picking up. Whether you agree with that is another discussion, but what you can’t do—cannot do—is ignore the bond market. When it comes to gauging the health of the economy, the bond and currency markets are far more informative than equities.
We’re about to walk into the largest year-over-year economic expansion in recorded history. The bond market is already pricing that in.
Here’s the takeaway:
US Treasuries are a safe haven. People buy them when things are scary and sell them when things look better.
The problem is the herd is usually one to two quarters behind the bond market. That’s why the average investor doesn’t make much money.
And to make things more interesting, we may see storm clouds in summer 2021. That could trigger a rush back into Treasuries.
A Message from Sean McDougle
The longer I manage our NEST portfolios, the more I realize that experience helps—but the real reason it’s getting easier is because I’m further removed from the academic theories that often keep people stuck. Education is essential, but too many professionals stay chained to what they learned in books and never think for themselves or adapt to changing markets.
And for anyone still doubting whether inflation is coming—go look at the CRB Index, which tracks commodities. The debate is over and has been for a while. If you’re waiting on Goldman Sachs or the Fed to tell you inflation is here, good luck.
I didn’t luck my way into the best start of a year in my career. I was positioned for rising growth and inflation. As of March 1, 2021, our most aggressive portfolio is up roughly 15 times the S&P 500.
— Sean McDougle, CFP®
Chief Investment Officer & Partner, NEST Financial
Final Thoughts
At NEST Financial, we’re here to provide unbiased investment education that helps families, business owners, and leaders reach their financial goals.
Disclaimer: The content provided in these webinars and recordings is for educational purposes only and should not be considered investment advice.
If you’d like to stay informed about the trends shaping today’s markets—and how they might impact your financial future—join us for our next NEST Edge Webinar. Our goal is to provide clear, insightful education that helps you navigate uncertainty with confidence. Whether you’re managing your personal investments or making decisions for your business, we’re here to support you with strategies that align with your goals.
Have questions? We’re always available for a conversation. Contact us at info@nestfinancial.net, and let’s talk about how we can help you build and protect your financial future.