Several Things Bonds Don’t Take Account of

日期:2013/09/12

There are several things that bonds don't take account of I think. The threat is worse than the execution. If the Fed tapers, it's already in the market and the amount of their reduction will be offset by reduced sales because of increased revenues. The stock of bonds is about 20 trillion As Tyler Cowen said, the stock of bonds, what existing holders will accept, is more important than the flow of 25 billion. The rate of inflation determines the yield. The rate past and expected is close to 1.5% and the premium that bond yields pay to the holders based on the Fed model is at an all time high. The ratio of stock market levels to bond levels is at a 3 year high and this is not bullish for stocks and bullish for bonds. The 10 year yield has pierced the barrier of 3% and frustration has been relieved. The levels of yields at 3% for the 10 and 4% for the 30 year are competitive with stocks and would cause a decline in the economy if they increased. I don't have a position in bonds but trade them fairly actively within the week.