Stocks are trad­ing at or close to 2009 highs, being helped along by a record steep­en­ing of the yield curve. Put sim­ply, on Tues­day the gap between 10– and 2-year US gov­ern­ment bond yields hit its widest spread ever – 286 basis points, beat­ing last week’s 276 basis points and the pre­vi­ous record set in August 2003 of 274 basis points.

From across the pond, David Fuller (Fuller­money) said: “Vet­eran sub­scribers will recall a remark often used on this site [Fuller­money]: Bull mar­kets do not die of old age — to which I will add warn­ings by Roubiniesque econ­o­mists. Instead, they are assas­si­nated — usu­ally by cen­tral banks. So how many rate bul­lets does it take to fell a bull? You may not be sur­prised to hear that there is no pre­cise answer, because it depends mainly on sen­ti­ment and liq­uid­ity. We know when cen­tral banks start to reduce liq­uid­ity, or at least increase its price, but we do not know pre­cisely when that will affect sen­ti­ment adversely.

“Note the still widen­ing spread between US 10-year yields over 2-year yields, oth­er­wise known as the yield curve, on this his­tor­i­cal. It is still ris­ing, indi­cat­ing to me that quan­ti­ta­tive eas­ing con­tin­ues. The time to start think­ing about clos­ing long port­fo­lios in antic­i­pa­tion of the next bear mar­ket, I sug­gest, will be when the yield curve next inverts by mov­ing below zero. How­ever, the lead was so early last time (early 2006) that some of us became com­pla­cent about it.”

Source: Fuller­money

Dr. Prieur du Plessis is an investment professional with 26 years' experience in investment research and portfolio management. More than 1,200 of his articles on investment-related topics have been published in various regular newspaper, journal and Internet columns, including his blog, Investment Postcards from Cape Town. He has also published a book, Financial Basics: Investment. Prieur is Chairman and principal shareholder of South African-based Plexus Asset Management, which he founded in 1995. The group conducts investment management, investment consulting, private equity and real estate activities in South Africa and a number of foreign countries. He also serves as Honorary Consul of Slovenia for South Africa, actively developing economic, cultural and scientific relations between Slovenia and South Africa. Prieur is 54 years old and live with his wife, television producer and presenter Isabel Verwey, and two children in Cape Town, South Africa. His leisure activities include long-distance running, traveling, reading, motor-cycling and scripophily. Read more from the author/contributor here.

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