Does the Fed Really Control Rates?…4 Fed Myths…and More!

Best of the Bond Market for July 27th, 2012

The Slack Wire: Does the Fed really control interest rates?  - When the Fed Funds rate goes up or down, the whole rate structure should go up and down with it. In which case, speaking of “the” interest rate as set by the central bank is a reasonable short hand.  How’s that hold up in practice?

A Dash of Insight: 4 myths about the Fed debunked – myths: The Fed is Sidelined by the Upcoming Election, The Fed Acts Based Upon the Stock Market, The Fed is Out of Ammunition, The Fed Knows the Employment Data.

Sober Look: The risk of holding long term treasuries is increasing – as long term US real rates hit record lows.

Marketwatch: Stocks vs. bonds: here’s why bonds are right – “Stocks have rallied because traders believe that Ben Bernanke and the Federal Reserve will launch QE3 at its upcoming August 1st meeting. Bonds have been rallying because they think it won’t,” leaving the economy to sputter along or maybe even contract. “Only one of these markets is right, and it’s usually the bond market,” Springer says.

Bloomberg: JPMorgan fixed income head says junk bonds still attractive – “Credit, even though the absolute yield level is low, is relatively attractive to where it was pre-credit-crisis,” Speculative-grade securities yielded 640 basis points, or 6.4 percentage points, more than similar-maturity Treasuries as of yesterday, according to Bank of America Merrill Lynch index data. That compares with 242 basis points, the low in May 2007.

Learn Bonds: How to chase higher yields as “safely” as possible – with increased return potential comes increased risk.  Here are some things to think about and places to look for higher yields.

Bondbuyer Video: Weekly muni market recap with Taylor Riggs

Bloomberg: Corporate bond sales fall as high yield issuance tumbles – Corporate bond sales fell in the U.S. this week as high-yield offerings tumbled 47 percent and relative yields climbed for the first time in almost two months with Europe’s sovereign-debt crisis roiling markets globally.

Governing: US municipal bankrupt cities and municipalities map -  map showing all municipalities filing for Chapter 9 bankruptcy protection since 2010, along with local governments voting to approve a bankruptcy filing.

Bloomberg: New York tops California for first time to become country’s largest muni bond issuer – California issuers were the top sellers in every year but 1998 until Governor Jerry Brown, facing $25 billion of budget deficits, cut general-obligation sales to $11.5 billion in 2011 and 2012, the smallest two-year total since 2006. New York and its cities and towns, by contrast, are offering more as yields close to the lowest since the 1960s spur refinancing as well as borrowing for repairs to aging infrastructure. This year, New York issuers have offered about $26.1 billion in long-term, fixed rate debt, to $22.7 billion for California.

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