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the fed has failed.. as a bond investor I lost money in bonds this year at a time they are supposedly setting the pace.
What do you mean failed? They set the interest rate. If you think it was bad policy then there we agree. It was a horrible policy...cept for their crony friends. Their goal was asset inflation and it worked swell. They cannot save bond investors. Who ever holds them at the wrong time are going to get a hair cut..... . Did great VWEHX since 2008 but saw that was largely over late in 2011. 1.5% on ten year? That is almost same as cash. Of course I knew the Fed was going to drive down rates in 2008 so.. But now there is no where to go but up.
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investors of the world will bid those rates anywhere they see fit regardless of the feds buying as they just did it when the fed spooked them.
They would never bid up the price to those yields without the Fed intervention.
interest rates usually lag inflation both up and down.
Since QE and 2008 it has not even been close. What did you think would happen if the Fed bids up the price for bonds with an unlimited supply of dollars? People would sell them for less? And the "inflationary" cash binge isn't going to happen with the FICA increase . I also question the idea that it matters because no one doesn't buy a car cause they don't have $20k in cash and "only have $20k in treasuries". Treasuries are liquid. So all that has been going on is the Fed has been exchanging interest bearing cash for non interest bearing cash. In the long term that's deflationary. That essentially means the fiscal deficits can go even higher with no inflation. No one has any revenue from bond yields.
we can agree to disagree on that topic. just watch what happens if the fed is still trying to hold rates down by buying and the bond market gets a whiff of inflation in the air being more than it anticipates.
we can agree to disagree on that topic. just watch what happens if the fed is still trying to hold rates down by buying and the bond market gets a whiff of inflation in the air being more than it anticipates.
And considering taxes can be raised and the Fed can buy unlimited amounts, how is that not a political decision? That is our argument. You think there is a true market while I don't. I can certainly witness the reactions on this side of the wall of what remains a market force. I hope you don't think corn or hamburger is set by the market do you, seeing as it is subsidized? ? Obviously if its not a true market there will be some sort of side effect. Sometimes that meant working in a gulag which also did not follow market principles since I believe the sentiment was universally trending away from being a Siberian exile.
the bond market marches to its own drummer plain and simple. sometimes it agrees with fed policy and is content and other times it does not. that is why it trades on investor sentiment ,even while the fed continues to buy.
heck , if the feds actions want rates to hold where they are and they are doing just what they have been doing the long treasury bond market would not have been able to fall 5% in 4 weeks in may like it did.
investors over took what the fed wanted to do and pushed yields up in a heart beat.
the bond market marches to its own drummer plain and simple. sometimes it agrees with fed policy and is content and other times it does not. that is why it trades on investor sentiment ,even while the fed continues to buy.
heck , if the feds actions want rates to hold where they are and they are doing just what they have been doing the long treasury bond market would not have been able to fall 5% in 4 weeks in may like it did.
investors over took what the fed wanted to do and pushed yields up in a heart beat.
How? If the Fed buys bonds until they yield 1% How? What if they purchased all the treasuries? How could you even buy an interest bearing gov security? They set the rate. That's it. That is why for 4 years the bond market has not followed the market.
Believe me if the bond market was not in agreement with 1% it would have been bid higher.
You are missing the fact the bond market just displayed their power. the fed spooked investors and in 4 weeks time investors bid yields alot higher whether the fed
wanted them higher or not. to see the long term treasury bond funds fall 5% in the blink of an eye in response to yields rising was something quite wild. I can assure you the fed did not want that to happen and un-do their efforts buying bonds in the first place.
It is what it is.
here is a quote from Robert graboyes of the Richmond fed when asked if they can really control longer term rates.
"Simply stated, the Fed cannot control medium- and long-term rates. Like the prices of apples and Mickey Mantle baseball cards, supply and demand determine long-term rates."
Anyway we beat this to death enough.
Last edited by mathjak107; 06-14-2013 at 12:27 PM..
Believe me if the bond market was not in agreement with 1% it would have been bid higher.
I suppose if the Fed ran out of bonds to sell on its own, yields would not rise. That would be rather astounding since yields are rising because they said they were not going to keep buying them, let alone selling them.
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You are missing the fact the bond market just displayed their power. the fed spooked investors and in 4 weeks time investors bid yields alot higher whether the fed
This is not even sane to me. If the Fed said it was going to change its mind and start buying again they would not be "spooked". How you going to get a 3% yield if they buy everything above it? So who controls the market? The one with the infinite balance sheet. If that is the power of the market to you then we have very different ideas about what a money market is. It is my understanding that government securities are a government monopoly. If investors are so easily spooked then how is that control? The only market action is trying to guess what they will do.
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wanted them higher or not. to see the long term treasury bond funds fall 5% in the blink of an eye in response to yields rising was something quite wild. I can assure you the fed did not want that to happen and un-do their efforts buying bonds in the first place.
I don't understand what this means.
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It is what it is.
Anyway we beat this to death enough.
But in no way what you say it is. The credit system of the US is a monopoly. The interest rate and the amount of it is completely in its control in the aggregate. It might mean a wealth shift to foreign holders of US securities if they wanted to say shrink it. However with taxing power an unlimited balance sheet they can set the rate. Somehow you have redefined that as having no power. No, certainly, I cannot set you on fire and then convince you that you feel a cool breeze. So no, the Fed cannot stop buying bonds and then tell you to pretend they are still buying bonds. However that is just nonsense. How you would be able to sleep at night with that kind of logic is your business. Be a free thinker in prison and call it freedom if you please.
They set the rate by the power of what they can do or the threat of what they can do, not ultimately what they say.
I suppose if the Fed ran out of bonds to sell on its own, yields would not rise. That would be rather astounding since yields are rising because they said they were not going to keep buying them, let alone selling them.
This is not even sane to me. If the Fed said it was going to change its mind and start buying again they would not be "spooked". How you going to get a 3% yield if they buy everything above it? So who controls the market? The one with the infinite balance sheet. If that is the power of the market to you then we have very different ideas about what a money market is. It is my understanding that government securities are a government monopoly. If investors are so easily spooked then how is that control? The only market action is trying to guess what they will do.
I don't understand what this means.
ut in no way what you say it is. The credit system of the US is a monopoly. The interest rate and the amount of it is completely in its control in the aggregate. It might mean a wealth shift to foreign holders of US securities if they wanted to say shrink it. However with taxing power an unlimited balance sheet they can set the rate. Somehow you have redefined that as having no power. No, certainly, I cannot set you on fire and then convince you that you feel a cool breeze. So no, the Fed cannot stop buying bonds and then tell you to pretend they are still buying bonds. However that is just nonsense. How you would be able to sleep at night with that kind of logic is your business. Be a free thinker in prison and call it freedom if you please.
They set the rate by the power of what they can do or the threat of what they can do, not ultimately what they say.
YOU ARE JUST NOT GETTING THE POINT.
the yields have risen because investors soured on bonds when the fed spooked them. the fed is still buying them so if investor sentiment could not out weigh the feds buying bonds than investors would not have been able to drive up yields on their own.
investor sentiment takes yields where they see fit. perhaps if the fed wanted to pump in 1 trillion a month as a minimum they could over power the bond market but that is unrealistic .
as I said, so far the fact IS yields have risen the last 6 months despite the fed attempting the opposite and that is before the fed spooking things . time will tell who is correct here.
Last edited by mathjak107; 06-14-2013 at 01:59 PM..
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