How Positive Jobs Numbers Could Lead to a Bond Sell-Off

Continued improvement in the jobs market could cause U.S. interest rates to rise, prompting a sell-off in Treasury bonds.

Apr 7, 2014 at 6:30PM

iShares Barclays 20+ Year Treasury Bond (NYSEMKT:TLT) could see renewed selling pressure after last week's nonfarm payroll employment report confirmed that the economy is in a steady recovery. According to the U.S. Bureau of Labor Statistics, nonfarm payroll employment rose by 192,000 in March, slightly beating estimates of 185,000. The unemployment rate was flat at 6.7%.

Fears of the effects of the "polar vortex" have subsided, and temperate spring weather helped bring about an undisrupted reading. This helps confirm that U.S. monetary policy is headed for higher rates, which would be a catalyst for the selling of Treasury bonds.

Although Federal Reserve Chair Janet Yellen said last week that low interest rates aimed at boosting the U.S. economy would likely be kept in place for some time, the premium tied to Treasury bonds as a safe-haven investment may be fading. The Russian invasion of Crimea sparked fears that a new Cold War could be imminent, but as tensions have eased, investor anxiety has also subsided. The change in sentiment has led funds to flow out of assets like precious metals and Treasury bonds and back into equity markets both in the U.S. and abroad.

Similarly, it can be argued that tighter monetary policy was mostly priced into market expectations during the spring of 2013. At a congressional meeting last May, former Fed Chairman Ben Bernanke said that cutting stimulus was a possibility if data warranted the move. The Fed ultimately chose not to taper stimulus until December, but the idea that stimulus was finite led 30-year bond yields to jump 100 basis points from May to September.

The concept of present value is the reason Treasury bonds sold off last May and could continue to sell off going forward. Present value is the idea that all past and future information is priced in at the present time, making everything known about the asset part of its price. When Bernanke hinted at tapering stimulus, traders acted as if he had just hiked rates. Likewise, the positive employment report allows investors to make the case that the U.S. labor market is healthy, which increases the odds that rates will rise sooner rather than later.

The recent sell-off in SPDR Gold Trust (NYSEMKT:GLD) suggests that traces of global market stability and tighter U.S. policy are already being priced in. The precious metal was bid higher at the beginning of the year as Treasury bond prices rose and fears mounted that a war between Russia and the West could break out. As geopotical risks subsided, the metal sold off, then saw the selling intensify when Yellen hinted that benchmark rates could be elevated as early as spring of next year.

GLD Chart

GLD data by YCharts.

There are still a lot of questions that need to be answered about the health of the U.S. economy before stimulus is no longer needed, but the employment figure on Friday was a major stepping stone. The number exceeded expectations, and now investors can price in a healthy economy, selling off long-dated Treasury bonds along the way.

Here Are Some Trends You May Want to Buy Into
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry. Our analysts have found multi-bagger stocks time and again. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.

Andrew Sachais has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers