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| BondsOnline.com: instant access to and extensive coverage of over 3.5 million stocks, bonds, indexes and other securities covering major and emerging markets and exchanges across the globe. |
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| 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
|
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)
|
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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Nobody Is Bigger Than The Bond Market; Not Even The Fed |
Seeking Alpha - Sept. 22, 2011 - By James A. Kostohryz
The global market for fixed income is over $90 trillion USD. By my reckoning, yearly traded volume is well in excess of $300 quadrillion USD.
An Operation Twist program that buys up $40 billion or so of long-term US Treasury bonds (TLT, IEF) every month isn't that big a deal in market of this size. If the Fed does this for ten months as announced, this would represent about 0.4% of the total global bond market. And it would represent 0.00002% of global bond trading volume during that period.
You might be wondering: Why do I use the global bond market size as the benchmark as opposed to the US Treasury market size? Simple: Global arbitrage.
One cannot assume that when the Fed buys Treasury bonds in market this liquid that prices will rise, or that yields will fall at all. Why? Because there is a global marketplace where investors calibrate relative yields amongst fixed income instruments. As soon as the Fed purchases Treasuries and long-term yields (TNX, TYX) fall a few basis points, on the margin, current holders of Treasuries will be prompted to take profits and invest those funds on securities whose spreads to Treasuries has increased. Furthermore, it is hardly safe to assume that these securities will be US securities. They could just as easily be Brazilian sovereign bonds, or Russian corporate debt.
There is another key issue to consider here. When the Fed purchases long-term Treasury bonds at negative interest rates (T-Bonds at 2.0% and inflation currently at 3.8%) it is clearly “debasing” the currency for reasons spelled out in detail here. In this case, the debasement – the difference between the real (inflation-adjusted) NPV of the bond and the face value of the currency issued-- is of a magnitude of about 17%. This sort of operation has consistently served as an inflection point in the evolution of inflationary expectations in the history of inflation crises in various nations.
If investors begin to lose confidence in the Fed and the currency it has been entrusted to manage, they will begin to “put back” long-term Treasuries to the Fed en masse. There are currently over $15 trillion in US Treasuries with remaining maturities of over six years. Even if a small percentage of holders sell their bonds on the secondary market due to a loss of confidence, the Fed’s $40 billion per month program could become overwhelmed very quickly.
For the complete article.
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| BondsOnline Advisor |
Income Security Recommendation January 2013 Issue.
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