At Arm's Length - A Daily Market Commentary - Before the Bell Rings Financial Commentary about Money, Investing, and How It Affects the Average Investor

At Arm's Length: 09.28.04

I have written about the poor fiscal policies that are currently being practiced by the administration. Those policies are showing ripple effects throughout the economy beginning with permanent tax cuts and ending unceremoniously with rising bond prices.

Not many people can relate to the significance of bonds and why so many people are talking about them. To them, the trickle down effect of higher oil prices is more important that a flattening yield curve. But there is a good deal of relevance in bonds, especially now.

As the yield on the Ten-year Treasury fell below the 4% mark settling at 3.99% on Monday. This not only makes mortgage rates begin yet another possible precipitous drop but those rates will reignite America's passion for refinancing debt and adding to the total. This is not good in itself.

But why is this bearish sentiment among bond investors causing such a flap? Much of it is based on the reading of the F.O.M.C. minutes released last Thursday. Chasing any yield available broadcasts the traders belief that they disagree with Greenspan's estimation of the markets. They do not believe that rates should rise because of low inflation, better economic traction and a job market that has "improved modestly". But when they hold all of the information available to them at arm's length, they have little choice.

The previous week's articles.

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