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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 .
You finally got the point. They have been overpowering the bond market for years by buying far less. That is why inflationary expectations didn't matter.
not at all, investors were just totally in the drivers seat with little fed intervention.
I'll say this much: perhaps investors have as much independence in their thinking as you do, despite reality. However for my part, if the Fed offers me more for my bond then you do, I am selling to it to them in the so called bond market.
You have not even seen what a joke looks like at the zoo.
For the rest of you:
I just look at the actual data rather than barking a market theory as if it applies to command economies. There it is clearly since 2008. No evidence of the market getting in or out of bond due to inflation. Quite the opposite.
Gee so hard to figure out why. If someone wants to sell a ten year and the Fed keeps buying them up by bidding up the price and driving down the yield, I guess you are the only one who isn't selling to the Fed at the higher bond price. .
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.
...maybe that was why mortgages were at record low? I mean, what are they talking about when they say they are supporting housing?
Toss out your old text books that say the Fed does not set long rates. Its obsolete.
The reason why the low rates isn't wildly inflationary is not hard to figure either.
having the bond markets following the feds lead in short term rates was no better than a coin toss as they moved based on their own perception of things.
larry swedroe had some interesting data looking at 1980-2011. he looked at intermediate term bonds and how they performed when the fed funds rate went up by at least 1%.
larry said :
"only in 1994 did the federal funds rate rise by more than 1 percent and intermediate bonds lose money. In fact, over the last 36 years, we have seen a dramatic cyclical decline in interest rates. Yet, there were almost as many years when the federal funds rate increased (17) as there were years of decline. Yet, we only had one year (from 1973 through 2011) when the intermediate bond index produced negative returns."
Last edited by mathjak107; 06-15-2013 at 07:08 AM..
it is only to show historically what has happened as the fed tried to increase rates.
we cannot draw any conclusion about the future yet.
the qe's still demonstrated the overwhelming power of the markets. as i said inflation fears drove bond prices higher in the beginning of qe1 just as the fed was buying bonds trying to lower the very same rates.
eventually the bond market stopped fearing qe1 as inflationary based on the economic numbers and world events and they brought rates downward in line with the feds lead.
like i said unless the fed is going to commit more than 1 trillion a month and not 85 billion to overwhelm the traders of the world they cannot over power that kind of money if the bond markets see direction differently.
when they committ that dough and take the market where it does not want to go we can have this discussion again.
Last edited by mathjak107; 06-15-2013 at 09:43 AM..
having the bond markets following the feds lead in short term rates was no better than a coin toss as they moved based on their own perception of things.
larry swedroe had some interesting data looking at 1980-2011. he looked at intermediate term bonds and how they performed when the fed funds rate went up by at least 1%.
larry said :
"only in 1994 did the federal funds rate rise by more than 1 percent and intermediate bonds lose money. In fact, over the last 36 years, we have seen a dramatic cyclical decline in interest rates. Yet, there were almost as many years when the federal funds rate increased (17) as there were years of decline. Yet, we only had one year (from 1973 through 2011) when the intermediate bond index produced negative returns."
Decided to remove the first response. If we are going to discuss prior to 2008... low Federal funds rates would bias towards higher long term rates all things be equal. It usually isn't.
Milton Friedman discussed that rates drop when money is tight thus the correlation would be weak that low short rates mean higher long rates. The correlation will certainly be weak enough compared to Federal Budget deficits which also increases the money supply like bank credit.
you get to wrapped up in events and the how and whys rather than just the bottom lines.
Bottom line is the Fed sets all interest rates.
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it all boils down to just two questions.
historically when the fed signaled they wanted rates higher and raised the feds fund rates did the bond markets follow along like sheep?
the answer is no , for what ever the reasons it was no better than a coin toss..
You have no idea what they want anymore than I do. All I know is people sell bonds to the highest bidder and the Fed can always bid what they want.
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since the qe's while the fed sought to lower rates by buying has the bond market followed along ?
Yes and I refinanced twice because of it.
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no, not at first ,demonstrating they were still in charge and yes later on after inflationary numbers and world events looked like not a problem.
What do you mean no? Record lows in the 10 year is not no. They drove it down to record lows just like Japan has done for 3 decades.
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the last 6 months have reversed and markets have bid rates higher and higher despite the fed wanting them lower and continuing to buy as i type this..
nothing else really matters except what we see as the end result.
You have NO idea what they want. Again all you need to do is tell me why I would sell you a bond for less to win your argument. Your only hope would be some sort of political pressure which seems to be completely absent. How ever technically its a slam dunk. They can just set the rate.
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