MANAMA, Bahrain, October 26, 2011 /PRNewswire/ -- Since US GDP was revised down and the political impasse over debt ceiling talks in the US, the financial markets have been particularly volatile. Asset classes that ordinarily would exhibit low volatility have been exhibiting extreme volatility including foreign exchange rates, commodities and government bond markets. Correlations between asset prices have also moved to an extremely high level, making optimal investment decisions difficult. The markets move from one extreme to another; from hope of a resolution to the Greek debt question and Eurozone exit and hope of further stimulus in the form of QE on the one hand to fears of global recession and deflation on the other.
... bank, it is common to take the interbank rates as transfer prices, or more precisely, matched-fun... price should be risk free, that is, government bond rates or interbank swap rates (for those matu...
NEW YORK -- The stock market put its rally back on hold Wednesday as investors grew worried about rising borrowing costs. The Dow Jones industrial average fell nearly 175 points to erase most of a rally from Tuesday as a jump in government bond yields fanned worries that higher interest rates will sap strength from the economy before it has a chance to recover. A steep drop in the price of the benchmark 10-year Treasury note pushed its yield up to 3.72 percent from 3.55 percent late Tuesday. That increase touched off fears that the government won't be able to hold down interest rates long enough to allow the economy to recover.
With uncertainty about the economy and the government deficit, inflation expectations and the direction of interest rates, bond investors are in a pickle. Short-term bonds, as well as money market funds and short-term bank certificates of deposit, are paying next to nothing. Longer- term bonds don't pay that much either and you risk loss of principal if interest rates rise, as many pundits predict. (Bond prices move in the opposite direction of interest rates. You may lose principal if you have to sell a bond before maturity. This "interest rate risk" is greater with bond mutual funds because as a rule funds never mature and the share price can dip and stay down if interest rates rise.)
Slumping bond prices send stocks lower NEW YORK - The Dow Jones industrial average fell nearly 175 points Wednesday, erasing most of a rally from the day before as a jump in government bond yields fanned worries that higher interest rates will sap strength from the economy.
Historically, sources of retirement income have typically included private pensions, Social Security and personal savings. Unfortunately, recent developments are impacting all three sources, making a retirement free of financial worries less probable. Securing retirement savings has challenges for fixed income savers and equity investors. Low interest rates have reduced income levels for fixed income investors. Equity investors are being advised to lower expectations. Retiring employees are discovering that pension benefits may not be distributed as promised. Recent research suggests that investing in government bonds is a viable strategy for accumulating retirement savings due to low risk and ease of investing. However, the previous focus has been on accumulation of retirement savings ...
The Federal Reserve's bold but mysterious plan to purchase $600 billion in long-term government bonds through June will be under the microscope in 2011 even if it works, in part because determining that is anything but simple. The bond-buying plan is an unparalleled effort to spark the economy. It's called quantitative easing. It's intended to lower long-term lending rates. It's controversial because critics worry that it might lead to inflation that's hard to quell.
NEW YORK - Interest rates fell on the bond market as investors snapped up government debt following a drop in the number of people preparing to buy homes. The drop in pending home sales for November caused concerns that the economy could give up some of the improvements it has been making.
K eep this column until April 2013. In the accompany- ing table, you will see two forecasts for federal debt-related items: the official Congressional Budget Office's forecast (which is close to the Obama administration's) and a pessimistic forecast (mine). No forecast is perfect, but it is likely that I will be closer to the mark than the CBO/administration because my assumptions are more realistic. The official forecasts assume real growth rates of roughly 3 percent and inflation rates of well under 2 percent (which would be below the current level). Three percent growth rates are not sufficient to increase the level of employment as a percentage of the adult population at work. Thus, the Federal Reserve will be under continuing pressure to keep up "quantitative easing," i.e., printin...
...Even though the amount of government debt was approximately a third of what it is today... more short-term notes rather than 10-year bonds). The government is entering the same type of trap...
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