By Frederick J. Sheehan
A persistent presumption here is the limit to U.S. government bond issuance that (important qualification coming) can be traded at government-manufactured rates. “March 2014 – One Month Closer,” issued the reminder: “Bond yields, across the spectrum, have fallen from 4.8% to 2%. In an open market, bond investors handicap their purchases according to a calculated risk. This is a rigged market, though. The rising quantity has produced worse quality, but central planners disguise that fact.” The conclusion to “The Economist’s Sell Signal,” (November 30, 2013) proposed a shorthand approach to investing as we approach the inevitable moment when non-government market participants say “enough”: “The Economist’sarticle was unbalanced, sloppy, and abandoned by the starting team: much like the world’s markets. A suggestion for current asset allocation: where would you want your money today if you knew interest rates will rise by 4.0% tomorrow?”
Federal Reserve Chairman Janet Yellen can really test her “Communications in Monetary Policy” thesis when all government and mortgage bondholders seek dollar redemption as correlations are moving towards one.
Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, 2009) and “The Coming Collapse of the Municipal Bond Market” (Aucontrarian.com, 2009)