Bond Market Reaction Archive
I'll admit that I have been lax in my coverage of the bond markets. What was there to report? Aside from the emerging market meltdown in May, now since recovered, fixed income investors who did not seek over-the-top risk in foreign debt, the best place to be was in short-term certificates of deposit and money market accounts.
For the uninitiated, mortgage backed securities are the life-blood of the lending industry. When a loan is generated, it is usually sold, bundled in a package of securities that are then sold as a fixed income investment.
Investors can be an odd lot. On one hand, we look to the past as a guide to the future. On the other, we disregard those lessons and instead rely on our intuition to guide us. Big mistake. A look at the new hybrid security.
Is Mr. Bernanke's revised outlook for GDP based on the belief that expanding trade deficits, a strong dollar, a restrained Chinese currency and the United States continued reliance on overseas funding as just good economic policy?
First piece of the puzzle is Alan Greenspan. He disagrees that the inverted or flattened yield curve is a good indicator of anything much at all. He failed to pay it heed back in 1999 as the curve inverted just as the equity markets heated up.
The Bernanke effect is still unknown. Although he looks to be at first glance to be an inflation hawk, his leadership of the committee after Greenspan's long tenure is open to speculation. Given some of the recent transparency, a look at the inner mindset that was not available just a few years ago, fixed income investors have begun to fall into two distinct and separate camps.
2006 will likely see a significant downgrading of corporate bond ratings because of increased merger and acquisition activity.
You don't hear much about munis, as municipal bonds are abbreviated. They not only hold the key to wealth preservation but they have been, for all of their second class status among risk seekers, out performing Treasuries and doing so under the investment radar.
Currently, the case against fixed income has been strong. Even with the 10-year Treasury yielding around 4.66% and Greenspan's conundrum somewhat answered as a result, long term is not the investment it appears to be.
The new Fed chief, despite what the President says, cannot have a policy that differs from the White House.
Finding a unique way to fund this noble effort, five European nations have decided to offer bonds totaling $4 billion to aid the Global Alliance for Vaccines and Immunization (GAVI).
(09.13.05) - For more reasons than the obvious, the effects of that storm on the next several months goes far beyond the contract grab by the administration's favorite companies, far beyond the rebuilding and restoration of the storm ravaged areas, and far beyond the costs incurred on a federal budget that is in no position to add to the already record deficit.
But one item caught my eye and for the sake of fixed income investors, might be telling. Greenspan seemed to be concerned that investors are willing to accept lower rates of return for longer terms.
By offering the 30 year long bond again, the Treasury hope is that the yield on these notes will be attractive enough to switch investors into the longer obligations.
Now as the stock market has gained ground for the last three weeks running, the yields in the bond market have also crept higher. That jump is credited to strong retail sales and what could be considered - by some and certainly not this column - strong manufacturing data.
The much hailed last inning - which became the vernacular for one more interest rate move - is not even close to what would be considered the perfect rate.
These are special times in the fixed income market. It is hard to say whether the
rate hikes were timely or not, but one thing for sure, they have created a
special window for bond traders.
Previous Bond Market Reactions - More past articles
