| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Deficit Cost Declines Give Obama Stimulus Clinton Couldn't Get |
Bloomberg - Aug. 29, 2010 - by Liz McCormick
The bond market is giving President Barack Obama the green light to spend more money to boost the faltering economy.
While the government has increased the amount of marketable Treasuries by 70 percent to $8.18 trillion the past two years, rising demand has driven yields so low that interest to service the debt has fallen 17 percent so far in fiscal 2010 ending Sept. 30 from all of 2008.
Instead of punishing the Obama administration for running up a budget deficit the Congressional Budget Office said will total $1.34 trillion this year, bond investors are pouring money into fixed-income assets as inflation slows and equity markets stumble. That’s a turnaround from 16 years ago, when Bill Clinton was forced to abandon stimulus plans after his advisers said the bond market would punish him with higher borrowing costs if it sensed swelling deficits.
“The deficit concerns are on the back burner,” said Andy Richman, who oversees $10 billion as a strategist in Palm Beach, Florida for SunTrust Bank’s private wealth management division. “The bigger concerns are on the deflationary mode and seeing growth slowing in the second half of the year.”
Obama has the bond market on his side as he heads into midterm congressional elections saddled with a 44 percent approval rating as measured by the latest Gallup poll. Two-year note yields are at all-time lows, allowing companies from International Business Machines Corp. to Johnson & Johnson to borrow at rates never seen before.
Bonds Rally
Treasuries have returned 7.9 percent in 2010 after losing 3.7 percent last year, according to Bank of America Merrill Lynch indexes. The MSCI World Index of shares has lost 4.6 percent, including reinvested dividends.
Through the first 10 months of fiscal 2010, $375.2 billion of taxpayer money was spent on interest, compared with $383.4 billion for all of fiscal 2009 and $451.2 billion in 2008, according to the Treasury. As a percent of gross domestic product, it was 3.2 percent in 2009, down from 4.1 percent in 2001, the last time the budget showed a surplus.
Bond vigilantes, the debt markets’ self-commissioned advocates of fiscal discipline, have been placated as the rate of inflation falls to a four-decade low of 0.9 percent. These traders drove up long-term interest rates and persuaded Clinton to place deficit-reduction above fulfilling his spending promises after he took office in 1993.
‘Deflationary Vice’
With inflation so low, “fiscal-policy restraint is not a virtue, but a deflationary vice,” Paul McCulley, a managing director at Pacific Investment Management Co., which runs the world’s biggest bond fund, wrote in a report posted on the Newport Beach, California-based firm’s website on Aug. 13.
The yield on the two-year Treasury fell a record 0.4542 percent on Aug. 24, the day the U.S. sold $37 billion of the securities. In 1994, two-year yields exceeded 7 percent. Yields on 10-year notes dropped to an 18-month low of 2.4158 percent on Aug. 25, from more than 8 percent 16 years ago.
The 10-year noted yielded 2.64 percent as of 11:30 a.m. in Tokyo, according to BGCantor Market Data. The 2.625 percent security maturing in August 2020 was little changed at 99 27/32.
While the dominant concern for the markets now is that the economy will fall back into recession, investors shouldn’t become complacent about the deficit, said former Federal Reserve Vice Chairman Alice Rivlin. She was named by Obama in February to serve on a commission on cutting the budget shortfall.
‘Looming Problem’
“We need to take serious steps on the long-run deficit right now, but they don’t have to be steps that affect the economy in the near-term.,” Rivlin said in a Bloomberg Television interview Aug. 17. “We have a looming problem.”
Continued borrowing to service the gap may eventually cause competition among the government, companies and consumers for funds when the economy rebounds, raising borrowing costs on everything from corporate bonds to mortgages.
“Obama and Congress are strained by the large deficits,” said Mark Fovinci, who manages $2.8 billion for Ferguson Wellman in Portland, Oregon. “If they came up with a large stimulus plan, there would be doubt in a lot of bond buyers’ minds about the longer-term stability of the deficit. We don’t want to end up like Greece.”
The U.S. Congressional Budget Office predicted on Aug. 19 that the budget deficit for fiscal year 2011 will be $1.066 trillion, revised up from an estimate of $996 billion in March. It projected the cumulative gap for the next decade will be $6.27 trillion, up from its March estimate of $5.99 trillion.
For the complete article visit Bloomberg.com
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