Deutsche economist: What's going on with bonds?


"Market expectations about Fed policy tightening have remained remarkably subdued despite increasing evidence that the U.S. economy is rebounding strongly," says Deutsche Bank Chief Economist Peter Hooper. The disconnect between what economists are forecasting, he says, and what the bond market is pricing in appears to be based on differing views about inflation, (or maybe economists just have things wrong).

Eurodollar futures continue to price in the Fed's first rate hike coming about one year from now.

"Our analysis suggests that the negative impact of global forces on U.S. inflation, while present, is likely diminishing ... The absence of a strong and growing global disinflationary force weighing on U.S. inflation has potentially important implications for market expectations and interest rates."

At 2.44%, the 10-year Treasury yield is at its lowest level since last June, but - before getting too excited about low borrowing costs - check out bailed-out Ireland, where 10-year paper yields just 2.6%.

TLT +1.25%, TBT -2.5%

ETFs: TBT, TLT, TMV, TBF, EDV, TTT, TMF, ZROZ, SBND, TLH, DLBS, VGLT, UBT, TLO, TENZ, LBND, TYBS, DLBL

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Comments (2)
  • DeepValueLover
    , contributor
    Comments (11169) | Send Message
     
    What's going on is what hit Japan in the 1990s has spread to Europe and North America.

     

    Buy what yields because yield is king.
    28 May 2014, 04:16 PM Reply Like
  • Robin Hewitt
    , contributor
    Comments (5473) | Send Message
     
    Economists are only guessing. That's all anyone can do. My guess is that money is going into treasuries for the simple reason that the market has run up so quickly and investors are hedging to protect their gains. Given that bonds and equities tended (in the past) to be inversely correlated, buying treasuries was a way to hedge. I used to buy zroz to hedge the market and would be doing so now had it not also run up so quickly.
    29 May 2014, 10:04 AM Reply Like
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