One of the more striking headlines yesterday was that Swiss government bonds now have negative yields out 50 years – that’s right, 50 years! That’s a little hard to fathom, partly because we don’t have bonds that extend that far, but also because 50 years is such a long time. I mean, if I bought a 50 year bond, I’d be in my 90s before I got my money back. Forget inflation, I’m just talking… Read More
One of the interesting things about the stock rally last week is that bonds also rallied. Over longer periods, stocks and bonds are lowly correlated, which means that they are generally independent from each other. Over very short periods, especially when there is a lot of activity, stocks and bonds are usually negatively correlated. If you had told me that stocks would rebound sharply last week and gain 3.27 percent, which reversed most… Read More
“Businesses are Falling Behind on Their Loans Like it’s 2008.” This is a headline that popped up on my Bloomberg TOP news screen recently. Since the financial crisis, every bank I have talked to has been focused on increasing C&I lending. After being snake bit by real estate, banks have all chased after commercial loans. That makes a headline like this particularly alarming and a situation worth further investigation. Looking… Read More
In the market summary section above the performance table yesterday, I mentioned that St. Louis Fed President James Bullard had broken ranks with his fellow Fed members and his previous statements and said that he expected rates to stay even lower for longer. I made a quick reference to the famous ‘dot plot’ and said that his dots were pretty far from the consensus. I thought today I would show the dot… Read More
Even though I was on vacation, I couldn’t resist checking market results right before bed (and sometimes during the day). I was shocked by two benchmark yields: the German 10-year below zero and the US 10-year at 1.57 percent. German 10-year yields have never been negative and the US 10-year has was just 0.18 percent off its all-time low of 1.39 percent, set back in July 2012. At one point,… Read More
When looking at the shape of the yield curve it’s easy to see that a lot has changed. Low yields overall have certainly pinched bond investors and made them look elsewhere for returns, but not all investors are so flexible. For banks who are restricted in terms of the investments that they are allowed to hold, the decision of where in the bond market to invest is an important one… Read More
As expected, the Federal Reserve left policy unchanged. For the third straight meeting, they left out any assessment of the balance or risks and said that they ‘continue to monitor inflation indicators and global economic and financial developments. The big concern going into the meeting was that the Fed could describe risk as more closely balanced, potentially providing a strong signal for a June rate hike. The statement no longer… Read More
In the third quarter last year, I wrote at least two articles that used the acronym ZIRP, which stands for ‘zero interest rate policy.’ At the time, all of the conversation was about how the Fed was ending ZIRP with their first interest rate hike in seven years. Today is the two-month anniversary of the hike and the discussion has moved from ZIRP to NIRP, which stands for ‘negative interest… Read More
So far, 2016 has been full of surprises, but most of the attention has gone to wildly volatile oil and stock prices. Less noticed, but equally important, has been the boost on bond prices, as seen by the dramatic fall in bond yields. The 10-year US Treasury note, the bellwether benchmark, started out the year yielding 2.27 percent, 10 basis points (a basis point is one hundredth of one percent)… Read More
As expected, the Fed maintained their policy stance yesterday in their first meeting of the year and left interest rates unchanged. The statement noted that the Fed expected ‘only gradual increases’, given their current economic outlook. The statement revealed their softer view on economic activity by removing its reference to economic activity ‘expanding at a moderate pace’ and noted the slowdown in growth late last year. The also took out the… Read More
