Nothing surprising in the news from the Federal Reserve’s Open Market Committee yesterday. The Fed said its plans were unchanged and that it would buy $600 billion in Treasuries in the first six months of 2011 in order to stimulate the economy. The economy itself, the central bank said, was doing better but not better enough to cut unemployment or to change the Fed’s program of bond buying

Nothing new but Treasury prices still took it hard. Prices on the 10-year Treasury fell and the yield climbed to 3.4% as of 2:37 New York time. Prices on the 30-year bond fell and the yield rose to 4.51%.

Bond prices weren’t helped by a bigger than expected gain in retail sales in November of 0.8% also announced yesterday. Economists surveyed by Bloomberg had been looking for a gain of 0.6%. The Department of Commerce also revised October’s increase in retail sales up to 1.7%. If the economy is accelerating, bond investors would want higher yields to compensate for a greater risk of inflation.

On the technical charts Treasury bonds and notes have entered territory that usually leads to further declines in bond prices. Read more

It’s a bond rout.

On December 8, prices for U.S. Treasuries plunged and yields on the benchmark 10-year U.S. Treasury hit a six-month high of 3.33%. That’s a full percentage point higher than the October low. And it’s a shocking 0.76 percentage points above the yield just a month ago on November 8.

It’s not just happening to U.S. Treasuries. Bond prices are plunging and yields soaring for developed economy bonds across the globe. In that same one-month period yields on German 10-year bonds are up 0.62 percentage points, yields on 10-year U.K. bonds are up 0.53 percentage points, and yields on Japanese 10-year bonds are up 0.29 percentage points.

But unless you’ve got part of your 401(k) stashed in an international bond fund it’s U.S. bond prices and yields that you care about. And you should. The drop in bond prices means a climb in interest rates that will affect everything from your retirement planning to your mortgage.

Let’s start with the Why of this big bond market move and then move to the Why you should care.

The reasons for the move up in yields—and down on prices–on U.S. Treasury bonds are pretty simple. Read more

Bond prices are down and yields up–and the trend looks like it could go on for a while

It’s not just happening to U.S. Treasuries. Bond prices are plunging and yields soaring for developed economy bonds across the globe. The benchmark 10-year yields on government debt in the United States, Germany, the United Kingdom and Japan are all up by 20 to 25% in the last month.

That would be huge volatility even for investors in stocks. For bond buyers it’s scary enough to send them screaming out the door—which, of course, just increases the volatility.

On December 8, yields on 10-year U.S. Treasuries hit a six-month high of 3.33%. That’s a full percentage point higher than the October low. And it’s a shocking 0.76 percentage points above the yield just a month ago on November 8. (Treasury prices rallied on December 9 but they’re down again today.)

In that same one-month period yields on German 10-year bonds are up 0.62 percentage points, yields on 10-year U.K. bonds are up 0.53 percentage points, and yields on Japanese 10-year bonds are up 0.29 percentage points.

The reasons for the move up in yields—and down on prices–on U.S. and German government bonds are pretty clear. Read more

Prices for 7- to 10-year Treasuries fall–if that’s a trend expect money to start flowing back into stocks from bonds

For most of 2010 Treasury bonds have been a very good investment. Sure, they haven’t paid much in interest but with yields falling, Treasury bond prices have been climbing. And so the gain on the iShares Barclay 7-10 Year Treasury ETF, which tracks the price of seven to ten year Treasuries, was 12.7% from January 4, 2010 through October 11. Plus interest.

Sure beats the 2.9% gain on the Standard & Poor’s 500 Stock Index for the same period.

No wonder money has flowed out of stock mutual funds and into bond mutual funds for most of the year. And out of equities and into bonds in general.

But you’ll notice that I stopped my performance numbers more than a month ago. Since then the trend in medium-term Treasuries has been down. And that trend has accelerated recently. Read more

Mr. Bond turns bearish on bonds

Mr. Bond, Pimco’s Bill Gross, doesn’t like bonds so much anymore.

Gross, who manages the $200 billion Total Return Fund at Pacific Investment Management (Pimco) told CNBC on December 7 that Treasuries are over-valued given the odds that inflation and interest rates are headed up.

That wasn’t just talk. Gross increased the cash position in his fund to 7% in November from a negative 7% in October, Bloomberg reported today. (The fund can go to a negative cash position by using derivatives, futures, or short positions.)

That’s the most cash Gross has held since Lehman Brothers collapsed in 2008.

Treasuries have had a tough December, turning in a 1.1% loss for the month so far. That would be the worst monthly performance since April, according to Bank of America’s Merrill Lynch unit.

And worse could be ahead. Read more