Have you sold bonds lately? You're not alone.
TrimTabs reports that bond mutual funds and ETFs have seen $114 billion in redemptions since the month of June—$30.3 billion of which has come between Aug. 1 and Aug. 19 alone. But that should probably come as little surprise, considering the Bank of America Merrill Lynch's August Global Fund Manager Survey showed that a mere 3 percent of investors think long-term bond yields will be lower in 12 months.
The obvious culprit is the Fed's tapering talk. Ever since Fed Chairman Ben Bernanke said on June 19 that "the Committee currently anticipates that it would be appropriate to moderate the monthly pace of [bond] purchases later year," the 10-year yield has risen from about 2.15 percent to 2.9 percent remarkably quickly. The concern is that the Fed will decide to taper its bond-buying program at its next meeting in mid-September, and that the reduction of buying support will cause bond prices to drop and yields to rise.
But Lawrence McDonald of Newedge says investors are getting the bond trade all wrong. In fact, he boldly claims that the 10-year yield will finish the year at 2.35 percent, and "maybe even 2.20."
So what are investors missing? McDonald on Tuesday spelled out the bond market's three biggest misconceptions on CNBC.com's "Futures Now."