Analysis Topic: Interest Rates and the Bond Market
The analysis published under this topic are as follows.
Thursday, April 05, 2007
A Fixed Interest Income Bond Market Shock Looms / Interest-Rates / US Interest Rates
By: Michael_Pento
First it was the NASDAQ stocks in 2000, then real estate prices, and now the third leg of this asset price correction is at the threshold. Recent salvos from China and our own commerce secretary may be the catalysts for this correction.
We have been in a multi-decade bull market in bond prices. From September of 1981 to June of 2003 the yield on the two year Treasury note fell from 16.46% to 1.23%. Likewise from October '81 through June '05 the 30 year bond has declined from 14.68% to 4.29%. Since then, the two and thirty year yield has risen to 4.5% and 4.85% respectively. According to Bloomberg, treasuries are now 1.56 percentage points lower than the 6.21% average of the past 20 years. That means even if you discard the high rates of a quarter century earlier into your calculation, treasuries yields are still about 32% below average!
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Wednesday, April 04, 2007
Derivatives Trading Disasters - From LTCM to the 'Ohio Put' in nine years of easy money... / Interest-Rates / Money Supply
By: Adrian_Ash
THIRTEEN YEARS AGO , the giant German industrial conglomerate Metallgesellschaft lost $1.5 billion trading crude oil futures.It admitted afterwards that it knew little-to-nothing about the oil market.
The next year, in 1995, Barings bank – one of Britain's oldest and most respected financial institutions – went bust thanks to a lone trade in Singapore losing some $860 million on Japanese stock futures.
The head office in London claimed it knew nothing about Nick Leeson's repeated strategy of 'double or quits'.
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Monday, April 02, 2007
Nolte Notes - What if ? Trade War with China ?, War with Iran ? Still expect lower US interest rates / Interest-Rates / US Interest Rates
By: Paul_J_Nolte
Former Speaker of the House, Tip O'Neil said that all politics is local. However, today the focus is trained upon everywhere but within our boarders. The hostage “situation” in Iran, the rumblings of protection legislation directed at China as well as the ongoing debate about the war in Iraq. What we need is a good debate about a new stop light in the middle of town! The impact upon the financial markets has been to take their eyes off the economy and play many “what-if” games – what if the hostage crisis lingers in Iran, what will be the impact upon our oil supply.Read full article... Read full article...
Saturday, March 31, 2007
Draw the Yield Curve, Then Plot the Data / Interest-Rates / Inverted Yield Curve
By: John_Mauldin
This week we look at something which has far more potential to hurt the economy than subprime loans - the US Congress. We muse on inflation data and why the economy may do better than I think.
Let's start with a question from reader Dr. Rick Simon Associate Professor of Mathematics of the University of La Verne. After some very nice comments, he threw in the zinger:
"That said, however, you've gone far into the 'draw the curve, then plot the data' mentality this time. It wasn't enough to 'spin' the data the way you want it; for example, by citing only the Fed's Moskow and ignoring Bernanke and others. You actually state, 'Fewer buyers and those losing their homes will mean more rentals. That means rent prices will go up.' Please do explain how more rentals on the market will cause rent prices to go up."
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Friday, March 30, 2007
Sweden's Interest Rates Expected to Rise Faster than Expected / Interest-Rates / Euro-Zone
By: Victoria_Marklew
As expected, the Riksbank today left its key repo rate at 3.25% and struck the same relativelydovish tone that it adopted after February's 25bp rate hike. The bank once again noted that, "over the coming months the repo rate will need to be raised by 0.25 percentage point ...
After that it will probably be possible to pause before making a further increase." The bank published its rate path forecast for the first time in February, indicating that it expected the repo rate to be at 3.5% by the end of this year, nudging upward to average 3.6% in Q1 2008 and 3.7% in Q1 2009. However, we think the path of tightening will end up being a little steeper.
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Thursday, March 29, 2007
Cross Currents For US TBonds and Interest Rates / Interest-Rates / US Interest Rates
By: Jim_Willie_CB
Volatility for US Treasury Bonds has risen markedly in the last several months. A rise in such bond yields creates a favorable background for gold prices. A fall in such bond yields leads to strong competition for gold as safe haven, in a manner which actually supports the USDollar.
Gold takes great advantage of rising bond yields. Cross currents point to both higher yields and lower yields, thus more volatility. Uncertainty abounds.
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Tuesday, March 27, 2007
Robust German and Still-Firm Euro-zone Economic Growth Add Up To June ECB Interest Rate Hike / Interest-Rates / Euro-Zone
By: Victoria_Marklew
After faltering a little in January and February, German business morale recovered smartly this month, with the Ifo business sentiment index rising to 107.7 from 107.0 the month before. The current conditions index recovered to 112.4 from 111.6 while the business expectations index rose back to 103.2 from 102.6 the month before. All told, German businesses appear to be recovering more quickly than expected from the three percentage point hike in the VAT rate that took effect at the start of the year.Read full article... Read full article...
Monday, March 26, 2007
UK strong house price growth signals further rises in interest rates / Interest-Rates / UK Housing
By: Nadeem_Walayat
Hometrack revealed house prices in the UK surged in March to take the annualised rate to 6.7% from 6.4%. With the likelyhood of further strengthening as the market moves into a traditionally stronger housing market demand period going into the summer. London experienced an even stronger growth of 1.8% due to the boom in the financial services industry, which provided a lift to the overall UK figures.
This confirms my expectations of further interest rate rises during 2007 towards our target of 5.75%, (UK Interest Rates could rise to 5.75% in 2007) - Nov 06. The expectation is now for the next rise in interest rates to come in a little over a months time at the May 2007 Bank of England MPC Meeting. A rise in April is highly unlikely, given the soft tone amongst the MPC members who voted 8-1 to keep interest rates on hold, with 1 vote for a cut.
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Thursday, March 22, 2007
Fed Signalling US Interest Rate Cuts that may Not happen / Interest-Rates / US Interest Rates
By: Peter_Schiff
Don't Uncork the Champaign Just Yet - By omitting a few key words from their most recent statement, the Fed led Wall Street to the premature conclusion that the next move in interest rates will be down. With the economy clearly headed for recession, there is no doubt that the Fed would like nothing more than to do just that. However, given that it wants to pretend otherwise, and considering the damage it would do to the already shaky U.S. dollar, an actually rate cut seems highly suspect.Read full article... Read full article...
Monday, March 19, 2007
The Inverted Yield Curve - Is It Really Different This Time? / Interest-Rates / Inverted Yield Curve
By: Paul_L_Kasriel
One of the components of the index of Leading Economic Indicators is the spread between the 10-year nominal Treasury yield and the federal funds rate (hereafter referred to as "the spread"). When the spread is widening, it is thought to be a harbinger of faster future real economic growth; when the spread is narrowing, it is thought to be a harbinger of slower future real economic growth. When the spread becomes negative, or the yield curve inverts, a necessary condition of a recession occurs.
That is, every recession starting with the one in 1970 has been preceded by a negative yield spread (See Chart 1, in which the shaded vertical areas represent recessions). However, there has been one occasion since the recession of 1970 when the yield spread turned negative and a recession did not occur. That was in the summer of 1998 at the time of the Long-Term Capital Markets arbitrage fund meltdown. The pace of economic activity slowed at this time and the Federal Reserve quickly dropped the fed funds rate by 75 basis points, perhaps forestalling a recession.
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Friday, March 16, 2007
Money Supply Bubble, Credit Squeeze and A Lender Who Will .... / Interest-Rates / Money Supply
By: Adrian_Ash
"...The bold step in finance - the market-leading decision - now comes by retreating from credit and refusing all risk..."
INNOVATIVE new debt products so ften sound scary.
Credit default swaps, negative amortization mortgages, synthetic collateralized debt obligations...
Doesn't Wall Street ever get its marketing guys to work on these things? You know, just to make them more friendly.
Because the truth is, innovation in finance isn't scary at all. Entrepreneurs and investors should embrace it if they want to get rich. Money loves innovation, and their offspring's called credit.
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Friday, March 16, 2007
The Inverted US Yield Curve - Is It Really Different This Time ? / Interest-Rates / Inverted Yield Curve
By: Paul_L_Kasriel
One of the components of the index of Leading Economic Indicators is the spread between the 10-year nominal Treasury yield and the federal funds rate (hereafter referred to as “the spread”). When the spread is widening, it is thought to be a harbinger of faster future real economic growth; when the spread is narrowing, it is thought to be a harbinger of slower future real economic growth. When the spread becomes negative, or the yield curve inverts, a necessary condition of a recession occurs. That is, every recession starting with the one in 1970 has been preceded by a negative yield spread (See Chart 1, in which the shaded vertical areas represent recessions).
However, there has been one occasion since the recession of 1970 when the yield spread turned negative and a recession did not occur. That was in the summer of 1998 at the time of the Long-Term Capital Markets arbitrage fund meltdown. The pace of economic activity slowed at this time and the Federal Reserve quickly dropped the fed funds rate by 75 basis points, perhaps forestalling a recession.
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Friday, March 09, 2007
Fed Signaling Future US Interest Rate Cuts - Gold to benefit / Interest-Rates / US Interest Rates
By: Jim_Willie_CB
In a series of public messages, the US Federal Reserve has issued some statements recently which telegraph an increasingly likely official interest rate cut. These guys will cut rates, but only when kicking and screaming, since they have displayed extreme reluctance at every opportunity.
They know the damage to the US Dollar certain to follow. They speak through their usual mouthpieces, but this time with the added impact of Sir Alan Greenspan, serial bubble engineer extraordinaire. One must connect the dots, a task now routine among my methods, putting to practice the motto “think like a thief” in order to properly gauge the enemy. Why? Because the integrity of the US financial system, economic management, and leadership is as low as a snake's belly slithering in the grass.
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Thursday, March 08, 2007
ECB expected to Raise Interest rates to 3.75%, BOE to Keep UK rates on Hold at 5.25% / Interest-Rates / Euro-Zone
By: Sarah_Jones
The Euro rallied in the lead up to this months European Central Bank decision, where it is widely expected that European Interest Rates will be raised to 3.75% to curb wage inflation, especially in Germany.
Thursday, March 01, 2007
Bernanke May Have To Break From The Greenspan's Interest Rate Cutting Script / Interest-Rates / Analysis & Strategy
By: Brady_Willett
Although subprime blowup fears continue to make for enthralling reading, the financial markets have yet to be seriously impacted. Rather, while some repositioning away from financial stocks and into utilities is suggestive of a developing defensive trend in the marketplace, this theme has yet to really get running. For that matter, the tightness in subprime is showing little evidence of spawning widespread restrictive credit practices.
Of course, this could, and likely will , change quickly, and the situation is certainly worth monitoring as we await the ?Greenspan Recession' to start later this year.
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Tuesday, February 27, 2007
US Interest Rates - The Effect of Globalisation on the Inverted Yield Curve / Interest-Rates / Analysis & Strategy
By: Hans_Wagner
The inverted yield curve has been a good predictor of a recession in our economy according to several studies. Many investors seeking to beat the market consider the inverted yield curve a good indicator of economic problems in the future. They reason that long-term investors will settle for lower yields now if they expect the growth of the economy to slow or go negative in the future. I have been concerned that the inverted yield curve was an important indicator of a recession in the U.S. that would begin later this year.
However, so far the forecast recession has yet to show itself. Could it be that the global economy is negating the impact of the U.S. inverted yield curve? Let's take a look at this idea.
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Friday, February 23, 2007
UK: BOE MPC Minutes and Data Point to One More Rate Hike / Interest-Rates / Analysis & Strategy
By: Victoria_Marklew
The minutes of the February 8 meeting of the Bank of England's Monetary Policy Committee (MPC) showed a 7-2 vote to leave rates on hold this month. The two members in favor of another hike thought that the 75bp of tightening since last August was too modest given the rise in inflation. The majority were concerned that a closely-spaced series of rate increases could lead to "excessive tightening."
However, the members seem still to be concerned about medium-term inflation risks, a concern also underlined in last week's Inflation Report (see Daily Global Commentary, February 14: " Bank of England Says One More Rate Hike Will be Necessary "). All told, the minutes, along with data releases of the past few days, point to another rate increase - but probably not until the April 5 or May 10 meeting.
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Thursday, February 22, 2007
Bank of England February Minutes of Monetary Policy Committee (MPC) - To Hold UK Interest Rates / Interest-Rates / Strategic News
By: Shahla_Walayat
The latest MPC minutes show that the decision to keep interest rates on hold at 5.25% was tighter than expected, with two members (Tim Besley and Andrew Sentance) voting to raise interest. And 7 electing to adopt a wait and see attitude following the last rise, and better the inflation figures for January. This implies that a future rate rise is still on the cards.
Friday, February 09, 2007
Bank of England leaves UK Interest Rates on hold at 5.25% / Interest-Rates / Strategic News
By: Shahla_Walayat
Despite speculation of another rise in interest rates, the Bank of England Monetary Policy Committee decided to keep interest rates on hold at 5.25%, following January's surprise rise to 5.25%. In a wait and see attitude, hoping that January's rise will be enough to curb pay deals and inflation.Read full article... Read full article...
Tuesday, February 06, 2007
Market Wrap - US Bond Market & Interest Rates / Interest-Rates / Forecasts & Technical Analysis
By: Douglas_V_Gnazzo
Two year Treasury yields lost 5 bps to close at 4.93%. Both the five and ten year Treasury yields fell 5 bps to 4.82%. Long-bond yields were also down 5 bps to 4.92%. The spread between the two year and the ten year closed the week inverted 11 basis points.
The Fed still has its coveted inverted yield curve - where short term rates are higher then long term rates. All inverted yield curves of the past have always been followed by a recession in the economy. Caveat Emptor.
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