![\"U.S.](\"http:\/\/www.profitconfidential.com\/wp-content\/uploads\/2013\/06\/U.S.-Treasuries-Is-Telling-Us.jpg\" "\\"U.S.")
<\/a>In May, the bond market<\/a> suffered the biggest monthly sell-off since 2004. (Source: Bloomberg, June 3, 2013.) To gauge the extent of the selling, take a look at the chart below, which shows the yield on a 30-year U.S. Treasury.<\/p>\nFrom the first trading day of May to the last trading day of the month, the yield on a 30-year U.S. bond increased more than 17%\u2014soaring from 2.81% to above 3.3%. This move is significant for the bond market, because as the yields on bonds rise, the prices of bonds fall.<\/p>\n
Chart courtesy of www.StockCharts.com<\/i><\/p>\n What does this mean? Traditionally, rising bond yields indicate inflation<\/a> ahead, something I have been warning about. But if I had to bet, I would say investors have tired on the low yields of bonds and are moving into higher-risk investments, such as the stock market.<\/p>\n What we already know is that as the yields on the U.S. bonds declined, bond investors<\/a> moved from the security of U.S. government bonds into higher-yielding bonds\u2014those that are higher-risk and are often considered speculative by credit rating agencies.<\/p>\n We can see the move to higher-risk bonds in the number of new non-government bond issues. In the first four months of this year, $115.1 billion worth of high-yield U.S. corporate bonds were issued. (Source: Securities Industry and Financial Markets Association, May 14, 2013.) In 2012, $329.2 billion worth of high-yield debt was issued in the bond market, and in 2011, this number was $224.1 billion. That adds up to $670 billion in corporate bonds in 28 months!<\/p>\n Taking all this into consideration, as the yield on 30-year U.S. bonds moves higher, the yield on corporate bonds in the bond market will rise further and bond prices will go lower\u2014that means bond investors will take a loss if they sell early! And, of course, they will sell early as few investors actually hold long-term bonds until maturity.<\/p>\n According to Lipper Data, high-yield bond funds in the U.S. witnessed withdrawals of $875 million in the week ended May 31. This was the biggest outflow from these types of funds since February. (Source: Bloomberg, May 31, 2013.)<\/p>\n Bond investors need to practice extreme caution, because the dynamics of the bond market have changed. The most basic indicator of the bond market, the 30-year U.S. Treasury, is showing weakness ahead. If this continues further, it will result in an even steeper sell-off throughout the bond market.<\/p>\n Dear reader, when the yields in the bond market fall, bond investors face severe losses. I wouldn\u2019t rule out a mass exodus from the bond market.<\/p>\n![\"$TYX](\"http:\/\/www.profitconfidential.com\/wp-content\/uploads\/2013\/06\/TYX-30-Year-T-Band-Yield-stock-chart.jpg\" "\\"$TYX")
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