|
|
|
|
Who We Are
Money Focus Mutual Funds Insurance Mortgages Taxes Step by Step Hot Topics Contact the Editor
Featured Site AfterHourTrades.com, Inc. Featured Columnist: |
How the Bond Markets React 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.
Bond prices are rallying as I write this based on geopolitical concerns. Those same concerns are sending the stock markets lower for the third straight week, foreboding another erratic series of trading sessions. This is the first reversal in yields in a week.
Looking to bond investors, the market's worriers, can often uncover an attitude lacking equity investors. They tend to be better consumers. They are after all buying debt and with that debt comes risks often shrugged off by equity investors. Proof of that was in the past year's meteoric rise of the most popular indexes, many of which are flat or negative for this year so far.
They worry about the Fed's turning a blind eye on inflation preferring the food and fuel excluded core index for the consumer price. If the Fed cannot recognize the problem, then interest rates will remain low offering more artificial support for the recovery. So far, the most helpful support for the recovery has come from cheerleading efforts by the major brokerages.
This week the Michigan Consumer Sentiment is released and because the outlook for jobs is not getting noticeably better and disposable income is still hovering around 3% because of continued refinancings (not because of income growth), bond traders may just retreat once again.
Those low interest rates have kept those mortgage securities troublesome. Some trader have taken to buying non-callable Treasuries at yields that could fall as low as 3.50%. Credit the improved "government speak" when it comes to convincing these wimpy souls that this is a good deal.
Let looking overseas only magnifies those risks here at home. The possibility of terror is still high. All of these reasons should have bond investors bailing. Had Paul Volker been the Federal Reserve Chairman when those CPI and PPI numbers were released, the action taken against inflation would have been swift and relentless.
Greenspan on the other hand, waits and bond traders complain, but not too loudly.
|
