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When the market (and economy) crashed in 2008, it was terrible in a lot of ways. But personally, it had some benefits. At the time, I (Stoffel, here) was a young public school teacher with a secure job.
All of a sudden, everything got cheaper:
A gallon of gas fell from $4.11 to $1.60 (60% drop) from July to December.
The median nationwide price of a home fell over 15% from 2007 to 2009.
The same was true for the U.S. government.
When the stock market crashed in 2008, investors wanted the safest investments possible -- U.S. debt. When the government auctioned that debt in mid-2007, it paid 5.0% interest on 10-year treasuries. Two years later, that rate was cut in half.
But something funny is happening right now.
As the stock market has crashed and investors brace for a tariff-fueled recession, bond yields have increased. In other words, investors aren't rushing to safety like they usually do. Yields increased from 4.0% to 4.5% during last week's chaos.
(You can check this metric by simply typing "TNX" into a finance site)
Normally, this would be concerning -- but not necessarily alarming.
But the U.S. government has to refinance $9.2 trillion (yes, TRILLION) of debt payments this year. The rising yield means the government (read: tax-payers) will have to pay much more to finance this debt.
This spells bad news for everyone: the government, stock-market investors, and even the bondholders.
Does this mean we're selling all of our stocks immediately? Not at all. Holding antifragile companies with wide-moat businesses and trading at reasonable prices is still the best approach to long-term success.
But if building up a reasonable cash position to help you sleep at night -- or take advantage of better potential prices in the future -- seems appealing, there's nothing wrong with doing that.
Stock investors don't often pay attention to the bond market, but they should. Jamin Ball has a simple-to-understand explanation about what happened in the bond market last week. While it's a current "event," it's still a timeless lesson stock investors should understand.
Chris Hill, the long-time host of the Motley Fool Money podcast, has gone out on his own with a new pod called Money Unplugged. We highly recommend it. You can check out his inaugural episode with Morgan Housel.
