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Bill Fleckenstein, President of Fleckenstein Capital, appeared on Bloomberg Television’s “Street Smart” last night talking about the Fed’s Quantitative Easing policy and its impact on the bond market.
Fleckenstein says the Feds decision not to taper along with the debt ceiling debacle should have caused rates to tumble back down to the 1.60 level they were at before speculation of the end of QE began. Instead rates on the 10 year Treasury have remained resolutely above the 2.60 level.
“I would argue the bond market has no reason to be at 2.60. It is potentially they have overdone money printing.” Said Fleckenstein.
Fleckenstein went on to show how the bond market reacted to the end of both QE2 and QE3, when rates on the 10 year were forced down.
So either the bond market has got into its head that the Fed is on a path of never-ending QE, or there are other factors at work.
Either way, its hard to believe the bond market is reacting the way the Fed expects. So has the Fed lost control of the bond market?
You can view the full interview here.
Todays Other Top Stories
Bloomberg: – How Wall Street fed Puerto Rico’s $70 billion borrowing binge. – Seven years ago, in the wake of a government shutdown caused by a $740 million budget deficit, Puerto Rican officials vowed to fix the island’s finances by 2010. Now investors are calling their bluff.
SF Gate: – California selling $2.2 billion in municipal bonds. – $2.2 billion. That’s how much California is selling in general obligation bonds this week, the biggest such offering since April. A strong economy and tax increases championed by Gov. Jerry Brown have prompted credit-rating upgrades this year from S&P and Fitch.
Reuters: – California GO sale greeted by moderate retail demand. – Moderate demand marked California’s retail-order period on Monday for its sale of $2.2 billion of general obligation bonds, some yielding 4.92 percent on their 30-year maturity, or 70 basis points above Friday’s yield on 30-year AAA-rated muni debt.
4Traders: – Is Puerto Rico worth the risk? – Wells Fargo’s muni bond portfolio manager Lyle Fitterer says if you can stomach the risk, Puerto Rico debt will make you big money.
Cate Long: – Should China build a muni market? – Reuters reported on the possibility that China’s government will take the next step in building a municipal bond market. It seems that local governments in China have accumulated a lot of debt and it needs to moved off their books.
Bloomberg: – How Wall Street fed Puerto Rico’s $70 billion debt binge. – Seven years ago, in the wake of a government shutdown caused by a $740 million budget deficit, Puerto Rican officials vowed to fix the island’s finances by 2010. Now investors are calling their bluff.
Learn Bonds: – Investors should think twice about owning mortgage REITs. – Mortgage REITs, unlike equity REITs, are a class of real estate investment trusts that concentrate their efforts on owning mortgage debt. By leveraging their investments, mortgage REITs are able to offer investors extremely enticing dividend yields. And in today’s yield-starved world, some investors reaching for yield may have found their way into mortgage REITs. But are the right option?
PIMCO: – Does fiscal policy matter for investors? – The cloud of dysfunction hanging over Washington, likely means lower rates for longer. PIMCO’s Tony Crescenzi explains.
Anthony Valeri, LPL Financial: – Who buys when the Fed does not? – Who will step in to fill the void once the Federal Reserve decides to exit the bond market? Anthony Valeri, Senior Vice President and Fixed Income Strategist at LPL Financial Research discusses.
Morningstar: – Corporate bond market has more room to recover. – Morningstar bond analysts generally hold a balanced view that corporate credit risk will either remain stable or improve slightly.
Trading Floor: – Corporate bonds bull run set to march on. – The present environment has been fertile for corporate bonds investors with the biggest risk factors out of the market or downscaled as themes. Subsequently, corporate bonds, especially high yield, have rallied.
Forbes: – Strike while the iron is hot. – Many high quality “junk” bonds are yielding in the six to seven percent range. There are even some investment grade corporate bonds that can be bought for a mid-single digit yield. Granted the days of double digit investment returns are not as easy to find, but considering the substantial potential risks in retaining ownership of one’s business, earning a five to 10 percent return on one’s money is not the worst thing in the world.
FT: – Default fears hit JC Penney bonds. – Fears of JC Penney defaulting on its debt have escalated after worries over the department store’s future were exacerbated by an analyst’s prediction that its share price would plunge to $1.
Pension Funds Insider: – Catastrophe bonds try to break new ground in pensions despite rift of opinion. – Pension funds are being urged to step in with their investment at a time when insurers against natural disaster are scrambling to cope with the aftermath of an eventful 2011. Last year saw earthquakes in Japan and New Zealand along with severe flooding in Thailand, while a hurricane hit the Northeast coast of the United States.
Marc Prosser: – The evolution of P2P loans into consumer loans. – Learn Bonds, Marc Prosser looks into the reasons why finance professionals and institutions are now choosing to invest in peer 2 peer loans.
FundWeb: – Are emerging markets on the brink of another debt crisis? – Emerging markets were left relatively unscathed by the credit crisis that has hampered global markets since 2008 but fears are mounting that some of these countries face significant debt problems of their own.
MarketWatch: – 7 bond funds that are now alluringly cheap. – If you’re looking for a bargain on the market right now, take a look at closed-end mutual funds, and especially at some of the closed-end funds that invest in bonds.
Forbes: – Index fund mislabeling creates problems. – We are regular victims of inaccurate labeling by mutual fund companies. The problems are generally associated with actively managed funds, but there are also issues within the index fund community. It would be great if some of the index funds the industry said existed actually did exist.
FT: – Bond market volatility takes toll on S&P. – Volatility in the credit markets and falling corporate debt issuance crimped growth at McGraw-Hill, which owns the largest rating agency Standard & Poor’s. The company said its third-quarter results were held back by uncertainty over the future path of interest rates, as the US Federal Reserve first floated, and then decided against, cutting its programme of monetary stimulus.
ETF Trends: – Bond ETFs breaking out. – Ten-year U.S. Treasury yields have surged over 39%, but a different tune has been sung over the past few days. Yields on ten-years have slid 8.2% as investors see a more sanguine outlook for bonds, predictably benefiting some of the largest bond ETFs in the process.