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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
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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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Laddering Bond Portfolios: The Alternative to Bursting Bubbles |
Seeking Alpha - Oct. 4, 2010 - by Bernard Thomas
Welcome to the Bubble (or, Bonds or Bust).
The cries warning us about a so-called bond bubble have been rising ever more loudly from the street. Sages warn us that there is more upside risk to interest rates than downside reward. No kidding? Did these financial oracles figure this all out on their own? With the Fed funds rates effectively at zero and the 10-year note hovering around 2.50% it doesn’t take a rocket scientist or someone with supernatural gifts to draw that conclusion. However, low rates do not a bubble make.
A bubble occurs when investors pile into an asset class, market, etc. irrationally. When calmer heads prevail and profit-taking begins, the bubble bursts. However, there is nothing irrational about today’s interest rate levels. Inflation is relatively tame. Job growth is lackluster. Banks are disincentivized to lend for both economic and political reasons. Consumers are still over-leveraged. What in the world, outside an exodus from the dollar by investors large and small, would push rates higher at this time? The answer is nothing, yet.
The truth is that the ability for investors to exit the dollar en masse is limited. Consider this: Gold hits a new high nearly every day. Some foreign central banks are actively, if not desperately, trying to halt the rise of their currencies. Yet long-term U.S. rates remain historically very low. Some of this can be attributed to quantitative easing and the threat of QE2, but it is more about the reasons why more QE may be necessary, not the QE itself, which is keeping rates low on the long end of the curve.
What are the reasons the Fed believes more QE may be necessary?
1). Consumers are not borrowing. It is true many are simply over leveraged and cannot borrow, but many do have access for credit but see little need to borrow. The Fed hopes to keep rates low to entice those who can obtain credit to come off of the sidelines. (If not push rates lower as has happened since the threat of more QE was announced.)
2) Businesses benefit from low borrowing costs. U.S. corporations have flooded the market with new debt. Large bond deals have come to market almost every day for the past several months. This cheap source of borrowed funds, which provide debt service expense savings, have contributed to stronger balance sheets and higher profits. If consumers spend less and business activity is modest, the Fed has helped make the transactions which do occur, more profitable. This is evidenced by the Durable Goods, GDP and regional business activity reports; that businesses are using this cheap source of funds to buy new, more efficient equipment. However, this does little for hiring.
Some economists have pointed out that increased hiring has always followed such spending. This may again be true, but the hiring which does take place may be smaller in scale than in the past. It might pay lower wages than to what workers have become accustomed and may be created offshore.
3) The third reason is policy-driven economic headwinds. Higher business and personal taxes, unclear effects of new healthcare legislation* and concern among banks as to what their capital requirements will be along with anti-business rhetoric from the Obama administration; all are doing much to dampen growth. (*Apparently Health and Human Services Secretary Kathleen Sebelius will have a good amount of discretion to decide which corporate health plans are acceptable and which are not. 'It is good to be the queen'.)
Businesses don’t have to hire. Consumers don’t have to spend beyond sustenance levels and banks do not have to lend if the reward of doing so does not justify the risk. No amount of Capitol Hill bluster is going to change that. Many pundits have pointed to one of my aforementioned reasons, but it is truly all three which are responsible for the disappointing recovery.
The upshot of this is that rates will stay low for an extended period of time. Cash is not the place to wait as rates are punitively low. The long end of the curve is not an optimal destination because a 100 basis point rise in long-term rates could result in 10+ point price declines on bonds.
For the complete article visit Seeking Alpha
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