It’s now at 1.76% and I’m even hearing clever people in the industry starting to believe that it’s still a bargain as they predict it’s going to Japanese levels before the end of the decade.
There seems to be a growing deflation crowd. Governments around the world are going through austerity measures (the US will most likely go through the same right after the election), wages will go nowhere for a long time with the oversupply of labor and saving rates will increase to the historical average, far away from the 1% we were accustomed to during the last 20 years. The Fed can pump all the money it wants in the system but if banks don’t lend and consumers and governments are deleveraging, more printing won’t work.
It seems like another case where you would have made a lot of money going against the crowd. I remember vividly on this site back in late 2007 (when Bernanke first started cutting rates aggressively) people guaranteeing massive inflation (even hyperinflation) within 5 years. Rates have been between 0 and 0.25 for 3 years and a half now and most likely will stay there until late 2014. Do people still believe that inflation will rear its ugly head before the end of the decade?
I honestly beleive we will be in a deflationary environment for quite some time as consumers and governments around the world begin to deleverage. If we take into account just how much leverage we were using prior to '07 (which was very significant) along with the expansion of manufacturing to low cost countries (vietnam, bangladesh, myranmar etc) there is the case, economically speaking, that demand necessary to cause inflation will not materialise for some time.
When I was in college back in '06 BOA gave me a 5k credit card limit even though I had no job.
Now, even though I have a better credit score and a five year track record of making > 100k I basically can’t get a credit card with a limit bigger than 2 grand which is a fraction of my monthly income.
My point:
We were doing inflationary stuff for a very long time and those wheels took a lot longer to grind to a hault than Lehman going bankrupt. This deleveraging is still going on. My guess is that it continues even longer. We’ve had a “hold onto your butts” mentaility since 2008 and it has never really gone away.
To the 2 previous posters, how will this affect your investments? Do you have the gutz to buy bonds at these prices? Many are saying there is more downside than upside but then again, who has ever made money going with the crowd?
fuck no, im staying out of vanilla fixed income, the yield simply isn’t worth saving for and I anticipate that the BoC will raise the overnight rate 25bps either q4 12 or q1 13.
To generate income I look at HY and preferred shares, with a focus on preferreds because they are tax efficient. You can also take a look at some of the high yieldingcommon stocks, with something like scotiabank putting out 4% yield plus capital appreciation on the upside (if it materialises) vanilla bonds are looking pretty lame. If I was running a fund, writing covered call options to generate income would look like a preety good idea right about now too.
The US gov’t is deleveraging? Hooray! Wait…what? :They’re running trillion dollar deficits? Oh f*ck. It’s true there is no inflation as long as you don’t have to eat, travel anywhere, pay for education or pay for healtchare. But LCD TVs and smart phones are wicked cheap. All is well!
All depends on what the Fed does in June. If they let Op Twist end without any further easing operations, I think we’ll see yields rise but just briefly until stocks start to collapse and everyone dives in Treasuries for safety. A couple weeks after Op Twist end, yields will be lower.
If the Fed does embark on additional QE-type activities, then we’ll see stocks rally and yields will rise.
While Treasury 10-year note yields approach record lows, they’re cheap compared with AAA debt of other nations, helping trigger record demand at U.S. bond auctions even in a fourth year of $1 trillion budget deficits.
Yields on the benchmark security are 23 basis points higher than the average for comparable debt of nations from Germany toAustralia, above the average of 12 basis points in the past year, data compiled by Bloomberg show. The gap between U.S. notes and German bunds widened to 37 basis points. As recently as November, bunds yielded 34 basis points more than Treasuries.
It’s to be expected really. After a credit bubble we should see a long period of low interest rates and deflation fears…what’s really sad is the morons who go crazy complaining about “Ben Bernanke debasing the dollar!!!” when that’s exactly what he needs to be doing. But even fools like that will eventually come around.
IMO though, I don’t think a low interest rate environment is a good time to be lending money, better to be borrowing. Unless of course you’re buying debt as a safe haven, which is different.
@bohdis, if you know where to look and how to analyze there are opportunities in the fixed income market. Also, there are other on exchange fixed income products that many investors are unaware of.
@Plantir, Borrowing money to buy what? What’s worth buying on borrowed money these days?
@Sweep, What is going to determine things will be the events that take place in Washington at the end of the year! At the end of the year we will, A) Reach debt ceiling again, B)Bush Tax Cuts Expire, C)Sequestration cuts in Defense and domestice spending, D) Election Results. These are the four horsemen of the economic apocalypse.
Yield at 1.45% now. Yes, i am talking about the 10 year bond. Yes, people are lending money for 10 years for an annual return of 1.45%. Yes, many bond traders still think it’s still a good buy at these levels as they expect these yields to get closer to 1%.
Anyone still believe the real return in the stock market will be 7% per year as per the last century? If not, how f*cked are some pension plans?