Bonds Finally Ready to Crack?
Mike Larson examines the history and present conditions for bonds in the U.S. In this issue of Money and Markets, Mr. Larson takes a closer look at the bond market and the activity going on within it.
Jupiter, Fla. (PRWEB) April 27, 2008 -- Mike Larson examines the history and present conditions for bonds in the U.S. Mr. Larson takes a closer look at the bond market and the activity going on within it.
When the nation's most prominent bond investor stops believing in U.S. government debt, it's time to take notice. Bill Gross, the blackjack player-turned-bond expert, has actually started betting against U.S. Treasury Bonds. Gross' Pimco Total Return Fund recently reported a position in government debt of negative 18%. The fund is using derivative positions to "short" Treasuries. And according to Bloomberg, this is the most bearish Pimco has been since at least 2000. Gross is betting that bond prices will fall and interest rates will rise. The market's recent action suggests that's just what is going to be seen.
Long bond futures prices were hovering in the low 120s in early 2008. They have since fallen to around 116 and just recently they breached a critical uptrend that dates all the way back to mid-2007. Meanwhile, the benchmark 10-year Treasury yield has recently risen from a low of about 3.31% to 3.75%.
Previously, bond prices were rising and rates were falling because investors were looking for a safe hiding place during the credit crunch. They were so panic-stricken that they were willing to buy long-term bonds no matter what the yield. But they can no longer afford to ignore what's happening with inflation:
| | - Import prices are surging at a 14.8% year-over-year rate.
- Wholesale prices are rising at a rate of almost 7%.
- "Official" consumer prices are climbing by 4%.
- The price of a barrel of oil is around $115, the price of a gallon of gas is $3.50, wheat has almost doubled, corn has increased by more than 65% and gold costs $900 an ounce.
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From New Delhi to New York, bond yields are not keeping up with soaring inflation. Rice prices have risen so much that riots are breaking out from one corner of the globe to another. Consumers are hoarding the key staple, and even U.S. retailers like Costco and Sam's Club are restricting purchases of it. And, still, real interest rates are deeply in negative territory. The list of companies raising prices spans continents and industries, and goes on and on.
Mr. Larson advises, "First, avoid long-term bonds. Second, if wanting to go a step further, profits can be made from falling bond prices using specialized funds that "short" bonds. Third, higher Treasury yields could also cause even more problems in the housing market. The reason: they will drive up rates on home mortgages, making it more expensive to finance home purchases."
To read this issue online, please visit:
http://www.moneyandmarkets.com/Issues.aspx?Bonds-finally-ready-to-crack-1702
About Mike Larson and Money and Markets
Mike Larson joined the company in 2001, and has more than 10 years of experience researching and writing about personal finance, investing, and the housing and mortgage industry. In 2003, Mr. Larson was named associate editor of the company's monthly Safe Money Report. In this role, he is responsible for writing and editing as well as analyzing trading opportunities for clients. Mr. Larson is also a regular contributor to the company's daily e-letter, Money and Markets.
Before joining Weiss Research, Mr. Larson was a personal finance reporter for Bankrate.com, where he wrote extensively on mortgage lending, banking, residential real estate, and Federal Reserve Board policy. His responsibilities included analyzing economic data and interest rate trends for a weekly column and developing rate forecasts for a regular index feature. Previously, Mr. Larson held positions at Bloomberg News and the Boston Herald.
Recognized as an interest rate and mortgage market expert, Mr. Larson's views have been quoted in the Washington Post, Chicago Tribune, Dow Jones Newswires, Reuters, Sun-Sentinel and the Palm Beach Post. He has also appeared as an investment expert to discuss the housing market on CNBC, CNN, and Bloomberg Television. His writing has been acknowledged by both the National Association of Real Estate Editors and the Massachusetts Press Association.
Among the first analysts to call the housing slide, Mr. Larson's new policy paper, "How Federal Regulators, Lenders and Wall Street Created America's Housing Crisis: Nine Proposals for a Long-Term Recovery" has received broad media coverage following its July 2007 submission to the Federal Reserve and FDIC. Mr. Larson holds B.A. and B.S. degrees from Boston University.
Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.
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