How Bonds Will Suffer Before the Fed Raises Rates

The Federal Reserve’s years-long zero-interest rate policy has flattened Treasury yields to where rising interest rates and inflation are almost assured manifestations. Investors may have to face the threat of rising bond yields. Damage to high quality, long-duration debt instruments would likely happen far in advance of a rise in interest rates with periods of significant volatility. What are the risks to portfolios? The first in a series of three papers that examines this questions is now available. Continue reading

How Does the Fed’s Recent Action Compare to EM Central Banks?

In an interview on Bloomberg Radio with Tom Keene and Ken Prewitt, I shared my thoughts on the Fed’s recent announcement that it would continue its QE efforts for the time being. If you missed the segment, I’ve summarized that conversation here for you. (Note that this is not an official transcript of our conversation).

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Four Contributors to Low Global Inflation

Recent data on inflation all around the world has come out lower than expected. This evolution seems to characterize the three major economic regions, although they are each experiencing different cyclical phases.

  • In the Eurozone, headline inflation plunged to 1.2% YoY in April, down from 1.7% in March and 2.6% as of April last year.
  • In the US, April data showed a slowing to 1.1% YoY, down from 1.5% in March and 2.3% in April 2012.
  • In Japan, there was a temporary jump of deflation to –0.9% YoY in March, with National Headline CPI down from –0.6% in February and –0.4% YoY in March 2012. But it was due to a one-off effect (fall out from the comparison of 2012 incentives to buy TVs) and it should not be interpreted as a sign of deepening deflation.

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