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(05.27.05) - The problem is not when, but who. The reasons for it might come from a large client pulling out; it might come from depressed credit ratings in a specific sector; it might come from a margin call. (05.18.05) - Even the most conservative of fixed income investors seeks some yield for their trouble. But the current market for bonds has become a truly troubling place, fraught with pitfalls and potholes known only to the pros. And even they seem befuddled at times. (05.06.05) - The possible reintroduction of the 30-year Treasury Note surprised traders on Wednesday as yields rose dramatically pushing prices down. For many, the most obvious question was: "Why did they do away with it in the first place?" (04.25.05) - The Open Market Committee would like to see a mild inflationary scenario but fears that many of the problems built into the marketplace will take firmer hold, the Fed is still attempting to talk inflation into some sort of control. (04.17.05) - With the Consumer Price Index excluding food and energy on the move up, wages looking weak and the "measured" approach the Fed is using to slow an economy that is slowing all by its lonesome, all eyes are on the Producer's Price index due out on Tuesday. (03.29.05) - The moves made by Greenspan and company last week were entirely based on the risk of inflation which will lead to continued tightening by the Fed. Plus a look at the importance of laddering your portfolio. (03.24.05) - Alan Greenspan and company raised rates for the seventh and certainly not the last time on Tuesday. The reaction to the expected quarter point increase was far from muted as the language that came from the meeting expressed concern over the possibility of inflation. (03.14.05) - It has become a pricing issue in the fixed income markets. This led to a dramatic sell-off last week pushing the 10-year Treasury note to a yield of 4.54%. This is a significant move in a week, with the yield settling at levels not seen since last July. This should provide some much need reasonable attention. (03.08.05) - While that seemed like good news, the number hides some basic weakness in the job markets that will eventually need to be vetted. (02.27.05) - Bond traders are hoping that the February jobs report, due out on Friday will be much better than the January report. I highly doubt it. Employers are feeling the pinch of higher costs and the relative inability to pass those costs off to the consumer. The consumer on the other hand may be slowing a bit - not saving more, mind you, but spending with less abandon. (02.18.04) - Inflation worries have piqued with the release of the Wholesale Producer Price Index. The oddly important core number that rose 0.8% against an expectation of 0.2%. The effects of this number will be spread across many markets. (02.07.05) - The Federal Open Market Committee met this past week and predictably raised the key short term overnight rate. But what made the bond markets sit up and take notice was the jobs number. Some consensus figures reached for 300,000 (although most predicted 200,000) new jobs in January, a month many saw as troubled by weather related issues in much of the country and specifically in the northeast. They were wrong. (02.01.05) - Some of you have asked about the ratings on high yield investments, specifically how they are determined. The Lehman Brothers U.S. Credit Index is the most widely used index of corpoarte bond health. Recently, the rules were changed in how these offerings were indexed. (01.25.05) - A lot of talk recently has looked at the slope of the Treasury yield curve as an indicator od whether the Federal Reserve Board will continue to raise rates, whether money supply will be affected, and how it will ultimately effect the economic growth. (01.11.05) - For bulls in this market, the hope that job creation accompanies wage increases and inflation will be moderate seems to be so much wishful thinking. Recent numbers suggest otherwise. (01.02.05) - Much to the dismay of fixed income investors, who were hoping for something better than what transpired, the turning of the calendar found bonds about where they were twelve months ago. And that simply wasn't supposed to be. (12.22.04) - Does the average corporate bondholder understand the result of the large amount of mergers and acquisitions? Do they understand the implications on the credit quality of companies who have so much cash that share buybacks and special dividends? Not likely. (12.16.04) - Evidence that these investors are finding inflation worth betting against can be found by subtracting the yield from Treasuries of similar maturity against the yield of Treasury Inflation Protected Securities or TIPS. (12.10.04) - Our best predictions see it this way: The economy will slow significantly when the Fed reaches 2.75% level. This will cause them to stop and reassess their position. It also gives them significant breathing room. (11.30.04) - Almost no one is talking about the 30-year Treasury as a place to park your money. Popular belief has the bond's yield, which moves in the opposite direction of the price, rising significantly over the next couple of years as the Central Bank continues to raise short term interest rates. Numbers as high as 6% plus have been tossed out as a possibility for a year from now. (11.16.04) - As welcome as the quarter point increase in the fed funds rate offered by the Federal Open Market Committee, few took it as the wake-up call it was meant to be. But that is understandable. (11.08.04) - You never hear about the outsourcing of jobs to China. The reason is simple. It has never been identified as such but when the exports of country outpace its material imports - and that's not raw materials either - the jobs that produce those goods are essentially a value over their counterpart in the US. But does China does have an import fixation that unfortunately has begun to wane. (11.03.04) - I can see clearly... Not really but you can't help but wonder how the fixed income market would react if it could. More and more, the bond traders are looking for clarity in everything from Presidential politics to the international movements of the Chinese interest rates to the release of the employment numbers due to this Friday for October. (10.25.04) - This adventure outside the relative safety of low yielding offerings such as Treasuries could prove troublesome. The decline in interest in these notes, while noticeable is hardly catastrophic - just yet. (10.17.04) - The long reach of the "sheriff of Wall Street" spilled over into the bond markets last week. Or more specifically the corporate offerings of American International Group and Marsh & McLennan. That put the bonds for both companies under pressure. (10.12.04) - Pick one. Any one. Or perhaps it is more than just one thing weighing on the economy, worrying Wall Street as they hope for the fourth quarter bounce and concerning investors to the point of disinterest. (10.04.04) - Bond watchers and chart people like to set what is often called a "support level". In the case of the 10-year Treasury, that support level was at a yield of 4.10%. Just last week, the benchmark note fell below the 4.0% mark albeit briefly. (09.25.04) - While we are on the subject of history, over the last thirty years, when the Fed began the cycle of raising rates to keep things on an even keel, the yield on the long term bond has fallen at the end of the cycle. (09.19.04) - One is the strength of the dollar on the world stage. Some economists believe that it will never lose its luster. Secondly, a scenario with the United States importing all of our needs under a negative net income flow (fancy words for spending more, earning less) is not likely. (09.12.04) - It has been referred to as the birth of the new organic marketplace. I am talking about the lackluster performance of the second quarter, which has been revised and consequentially swept under the rug. But the period was a snapshot complete with a new GDP and a new annual rate of 2.8%. The interesting things about the quarter was no change in monetary accommodations, no tax cuts and no real change in how investors look at bonds - except skeptically. Mortgage cash-outs or in this case, lack of them, are a good sign to the fixed income trade that this is what an unstimuluated economy looks like without any outside sugar coating from Washington or the Fed. (08.30.04) - The Federal Reserve Board has often be accused of being the strongest political influence in Washington. When the Federal Open Market Committee meets in September, many of the numbers that it once saw as a sign of economic growth have slowed considerably. (08.23.04) - Someone called it an intellectual exercise. Some folks have said that the lack of pricing power at the pumps (gas actually has come down) proves that the current move towards $50 a barrel for oil is really not much more than speculation. (08.08.04) - Hard to imagine a more interesting scenario for all parties concerned. In one corner, the President is stumping a positive - and erroneous - spin on his success with the economy. In the other corner is Mr. Kerry who unveiled a workable plan that, provided the administration doesn't muck the economy even more in these last eighty days, has a long term solution to a short term disaster. (08.03.04) - For over a month now, the bond markets have done what every other market has. They have taken the lead from the economy and begun to lower expectations that growth, or the gallop that growth once was, has slowed considerably. Each time I sat to write something about this event, a supposedly weekly ritual that was interrupted briefly by a vacation, there would be nothing to say that hasn't been written before. (08.08.04) - Hard to imagine a more interesting scenario for all parties concerned. In one corner, the President is stumping a positive - and erroneous - spin on his success with the economy. In the other corner is Mr. Kerry who unveiled a workable plan that, provided the administration doesn't muck the economy even more in these last eighty days, has a long term solution to a short term disaster. (08.03.04) - For over a month now, the bond markets have done what every other market has. They have taken the lead from the economy and begun to lower expectations that growth, or the gallop that growth once was, has slowed considerably. Each time I sat to write something about this event, a supposedly weekly ritual that was interrupted briefly by a vacation, there would be nothing to say that hasn't been written before. (06.27.04) - There is no doubt, that in the coming days, many things will seem unchanged even as we are told they will be different (i.e. the handover of Iraq scheduled for mid-week), many things will change as we are told they will be the same (i.e. the jobs number will be hailed as encouraging although employers are making it clear, one slight bump in the road and all of those new workers will be gone) and the change that we all saw coming but knew not what to make of it (i.e. June's F.O.M.C. meeting where interest rates will change by too little too late) will finally arrive. But we all know that. What we don't know is what will happen as a result. Holding it at arm's length might offer some assistance. (06.07.04) - Bond traders have already braced themselves for at least a quarter point jump, with another quarter point added in August for good measure. (06.02.04) - This Friday's employment report is anticipated for two reasons. But if those employment numbers lack the luster that is anticipated, the message that would send the markets could lead us to a much slower growth over the months leading up to the election. (05.12.04) - Not too many folks are aware of what a carry trade is. In its most simplified form, it is money borrowed at low rates that is then used to by securities (fixed income) at a higher rates. Several things need to be in perfect alignment for a good carry trade scenario to be worth the effort. (05.03.04) - It seems to be all about patience - not to short change all of the other worries plaguing the bond markets of late and that includes the jobs report watch which has become the number to wait for all month. That wait will be over Friday as the April number is released. (04.27.04) - For Greenspan, it is not whether rates will go up - because they most definitely will - but when and how. (04.20.04) -What worries Bill Gross of the Pimco Bond family is duration. He called it thrice damned - "damned if you shorten, damned if you lengthen, damned if you don't do a thing". (04.05.04) - The jobs report and the stronger than anticipated ISM number all point to one thing in the future: higher short term rates. With an almost sure bet that some move will be made by the Fed before the election, Treasuries began selling. (03.31.04) - According to the ISM, the definition of supply management is "the identification, acquisition, access, positioning, and management of resources the organization needs or potentially needs in the attainment of its strategic objectives." So why does supply management play such a key role in today's trading, perhaps even more important that the jobs report due out on Friday? (03.22.04) - What happened to the investor in fixed income that demanded they be rewarded for the risk? The risk that would be worthy of just such a demand is coming in the form of inflation and deficits. But bond investors seem to be rolling over. (03.16.04) - Last year, as the summer started to heat up weather-wise, the bond market cooled off. The dramatic dip in the ten year note to 3.11% yield was based on a good deal of speculation about deflation. Greenspan expressed his worry and the markets understood those concerns. With a 1% overnight rate, many, including myself, thought the Fed had no room left to move. This week (03.07.04) job numbers took the bond prices down almost insuring a longer low interest rate environment. This is not good news. This week (03.02.04) job numbers will be watched closely and the fall of junk. Greenspan speaks about Social Security. (This is commentary that first appeared at the BlueMoney Report.) (02.23.04) We take a look at the results of the Fed Chairman's comments about labor. (02.15.04) We discuss the results of the Fed Chairman's visit to the Hill. If bond fund managers are any indication of how they expect the Federal Reserve to move in Tuesday and Wednesday's F.O.M.C. meeting, prepping your bond portfolio for inflation by the end of the year would be right in line. Fed watchers will be looking for any change in lingo coming from the meeting but don't expect it. Alan Greenspan, the Fed chairman is seemingly comfortable with the current low inflation rate and the so-called jobless recovery and has no apparent intentions to rock that boat anytime soon. Granted, the intentions are not to keep unemployment high but instead to foster new job growth in a low interest environment. Problem is, companies have not risen to the bait. Many major corporations remain skittish when it comes to hiring largely because without all of those working people filling the factory floor (in this country), profits have risen significantly. Greenspan understands that the current administration is going to push hard for a permanent tax cut, continue to spend as if there is no tomorrow, and that the weak dollar policy, while understated, is exactly what Mr. Bush and Mr. Snow want. If, as many bond traders believe will happen, there will be little margin for error in bonds if they are not protected against rising inflation. Two things point directly at this possibility: The 5 year Treasury note is yielding 3% and the CPI is hovering around the 2% mark. This will leave what is referred to as a "real yield" of only 1.1%, at best. Pointing at the attractiveness of TIPS in this environment is truly the work of a worried fore-thinker. But the argument follows the logic. With a traditional bond, the semiannual coupon rate is set when the bond is auctioned. With a TIPS (Treasury Inflation Protected Security), the same coupon is set but with the principal adjusted to take into account inflation. This protects the underlying purchasing power of the investment and actually creates a better yield. Popular guessing, a game of probability that entertains bond traders in-between Fed meetings had called the chance of a hike in the overnight rate in June at 100%. That number was revised downward for the August meeting as well because the jobs that were due to return as a result of the 41 year low rate haven't materialized. |