Best of the Bond Market Top Story: The Single Biggest Threat to the US Economy

Best of the Bond Market for April 2nd, 2012

Top Story

Tweet by @counterparties Article by Bloomberg Businessweek

The end is coming January 1, 2013 - Our Take: For anyone who thought the debt ceiling crisis ended last year, it was really just postponed.   By coming to an agreement that if certain cuts where not made by January 1st, 2013 then a series of automatic cuts would take place, congress was able to kick the debt crisis can down the road.  Basically nothing has been done since then so unless congress gets its act together to come up with a better plan, these automatic cuts will kick in.  If that weren’t enough, this is also the time when the bush tax cuts are due to expire.  As Felix Salmon points out in his blog “No less than Ben Bernanke, Mohamed El-Erian, Martin Feldstein and Alan Blinder have used the same talking points, warning of the U.S. falling off a “fiscal cliff” in 2013″

 

Other Top Stories

Tweet by @krbazzy Article by NY Times

3 Major American Banks Brace for Moody’s Credit Downgrades - Our Take: In order to make sure that no one has forgotten about the financial crisis, Moody’s has come out with a statement that it will decide in mid may wether to downgrade 17 banks, including Bank of America, Citigroup, Morgan Stanley, Goldman Sachs, and JP Morgan.  Couple of interesting points here.  First its important for bond investors to understand that in addition to having to pay higher yields on their debt, when a financial company is downgraded it can affect many other parts of its business.  Second is that this is not going to come as a surprise to the market, so much of the affect of the downgrade has probably already taken place as institutions evaluate the current situation.

Tweet by @sb_sullivan Article by the Wall St. Journal

Bond King’s Trade Pays Off - Our Take: PIMCO’s Total Return fund is back on track after a rough 2011 as Bill Gross’ aggressive bet on Mortgage Backed Securities led the fund to a 2.88% first quarter return for 2012.  Gross got in early on a trade that has become popular with other traders now as well, which is basically a bet that the FED will be back in the market aggressively in 2012 and that one of the places they are going to target with their buying is the MBS market.

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