Tactical Topics – Treasury Yields – Part 1
February 22, 2021
The last two issues of InFocus – Bubble Risks – Monetary Gas & Debt, Parts I and II argued that the 2020 “pandemic year” has set us up for a significant rise in inflation. Topics in the next four InFocus issues review factor-based tactical portfolios through fundamental support for alternative investment options. Wise investors seek to hedge inflation risk and deflation risk, the two-primary means for losing money: wealth in current dollars (deflation) and in the future purchasing power of their dollars (inflation).
This issue reviews the recent rise in Treasury (TSY) yields and the steep rise in the TSY Yield Curve (TSY YC) from one- to three-month TSY bills to one- to 30-year TSY notes and bonds (Figure 1). Rises and declines in the slope of the TSY YC significantly impact the performance of a traditional domestic portfolio (TRAD64) comprised of a 60% allocation to the S&P 500 Index (SPY) and the Barclay U.S. Aggregate Bond Index (AGG). TRAD64 is expressed with exchanged traded funds relative to the Dorsey Wright Asset Management Tactical Model (DWTAA), which employs on a long/short basis: global financial assets (mostly stocks/bonds/currencies) and real assets (mostly commodities, gold, and real estate, Figure 2).