Thursday, November 4, 2010

bond frenzy redux

Yesterday the Federal Reserve announced its latest program of "quantitative easing", a program that had been well anticipated by the stock and bond markets. The Fed is going to be a big buyer of treasury bonds and notes over the next 12 months. Today's front page of the New York Times has as its headline story the Fed announcement.

As I pointed out in my last post on this subject a couple of weeks ago, the bond market is in a "frenzy" stage. The chart above shows that 10 year note yields are near their historical low points. In fact,the last two front page stories on the bond market have both occurred while the 10 year note yield has hovered above its recent lows and above its historical low of 2.02% reached in December 2008.

I take this as evidence that the market thinks the Fed will succeed in its goal of fostering an economic recovery. The implication is that bond yields are headed much higher from here.


  1. Hi,
    I heard the Fed will be backing up muni bonds as well.
    I just invested some $$ in BAB. David Lerner was bragging about it....but he's no Dr. Futia!


  2. Yes Sir!
    Thanks for the read.

  3. Hi Carl - i am new subscriber to your realtime site, but perhaps my question is more appropriate here:

    Have you, or do you make guesstimates for US home prices and the real estate market? Can you directly commment on home prices in the near/distant future?

    Thank you

  4. Bonds are obviously most value challenged, with 10-year USTs at their five-decade lows, in nominal and in real terms. The pace of mean reversion in real yield is quite slow, but is a force that cannot be ignored.
    Thanks for giving reads,which keep me engaged to learn more&more...

  5. kcounty:

    Sorry, I can't help you there. I haven't the foggiest idea about future trends in home prices!