The Bond Market's Warning Is Getting Louder, and History Says Investors Should Pay Attention
The market is near all-time highs, and valuations look stretched, even as the bond market flashes important warnings signs.
Overview
Warren Buffett, the former CEO of Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB) and world-famous investor, has noted that investing is more about emotions than intelligence. This is important to remember every day, but right now it could be even more important than usual. However, it is the bond market that is highlighting the risks that may tax the emotional systems of unsuspecting stock investors. Here's what you need to know so you can prepare ahead of time.
From a big-picture perspective, bond investors are pushing up bond yields. The 10-year and 20-year Treasury yields are both near their highest levels since 2002. That's back before the 2007 to 2009 Great Recession and toward the end of the bear market that followed the burst of the dot-com bubble. Yields move in the opposite direction to bond prices, so rising yields indicate a bond sell-off, as bond investors demand higher yields to compensate for the risks they are taking on.
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Originally published at www.fool.com.