Noise is Hiding a Tremendous Bond Market Opportunity

Michael LebowitzAdvisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

Treasury yield levels are a function of inflation. But in the short run, several factors influence deviations between yields and inflation. These factors, which I call “noise,” are significant for short-term traders but hide tremendous opportunities for those with a long-term horizon.

Bond market noise can be deafening. The horror-ridden narratives explaining the sudden rise in yields are compelling. They steer even the best traders away from a golden opportunity.

For those bullish on bonds, separating the noise from the signal is difficult. But doing so alleviates short-term stress when bond prices move adversely. Additionally, it maintains confidence in long-term fundamental prognostications.

This article discusses one of my favorite bond fair-value models to show you the true bond-yield signal.

Per Conceptually:

The signal is the meaningful information that you're actually trying to detect. The noise is the random, unwanted variation or fluctuation that interferes with the signal.