Bond Bloodbath? Putting The Jump In Rates Into Perspective

Discussion of the Bond portion of the Permanent Portfolio

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murphy_p_t
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Bond Bloodbath? Putting The Jump In Rates Into Perspective

Post by murphy_p_t » Wed May 13, 2015 1:30 pm

http://www.zerohedge.com/news/2015-05-1 ... erspective

I'm posting this because the boneds cause a lot of anxiety, and I think this helps put the bonds recent move into context. (Plus i may wish to refer back to this myself in future :o)
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buddtholomew
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Re: Bond Bloodbath? Putting The Jump In Rates Into Perspective

Post by buddtholomew » Wed May 13, 2015 3:05 pm

Here's my conspiracy viewpoint on the recent rise in rates. The FED can sell LTT's to raise interest rates and demonstrate to the market at the same time that the rise has little to no impact on equities. Mission accomplished. Now, when the FED funds rate is raised the reaction is muted.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
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dualstow
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Re: Bond Bloodbath? Putting The Jump In Rates Into Perspective

Post by dualstow » Wed May 13, 2015 3:24 pm

Great article!
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moda0306
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Re: Bond Bloodbath? Putting The Jump In Rates Into Perspective

Post by moda0306 » Wed May 13, 2015 3:38 pm

budd,

The fed's attempts at moving the long end of the curve usually fail.  As that end of the curve is determined more by predictions of future short-term rates than the quantity of long-term bonds on the market.

I forget the source, but a while back someone was tracking the correlation between interest rates and QE, and the results were counter-intuitive.  When QE rounds ended, long-rates fell, and vice-versa.  Theoretically, this is due to the fact that when you have an activist fed, more visibly concerned with unemployment the inflation, future growth/inflation prospects are better when you have a fed that is visibly less concerned.  So interest rates on the long end RISE when QE is enacted, and FALL after it quits.

This last round might have been an exception, but you have to realize this is all a game of expectation-management up against market fundamentals and fed actions... it's a big loop, and the cause-effect relationship within all this is very difficult to pin down, as it's more of a symbiotic feedback loop (perhaps there's a better phrase) than a direct cause/effect chain. 

Interest rates affect inflation & lending... inflation and lending affects employment and wages... inflation and employment affects the fed's setting of interest rates... lather rinse repeat.  And add to that that the market already KNOWS that this relationship exists and builds itself around this feedback loop, and you have an even more complex relationship.

Not saying you don't have a point there, but I think we have to be careful when looking at how these relationships develop.
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buddtholomew
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Re: Bond Bloodbath? Putting The Jump In Rates Into Perspective

Post by buddtholomew » Wed May 13, 2015 6:02 pm

Moda, I honestly have no clue why interest rates are rising...perhaps it has to do with the 24B auction later this week. Why would the FED not buy down these rates as it has the potential to offset what QE is intended to achieve. Without low/er rates, the whole Ponzi scheme comes crashing down.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
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Re: Bond Bloodbath? Putting The Jump In Rates Into Perspective

Post by Pfanni » Thu May 14, 2015 3:17 am

Bonds move like stocks in the short to medium term - it's random walk.
Random, by chance, haphazard. Don't try to explain short-term moves. Read up "A random walk down Wall Street".
30yr rates could be 5% next week. Or 1% the week after. It's a fool's game to try to predict.
The key is to just stay in the market.
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Re: Bond Bloodbath? Putting The Jump In Rates Into Perspective

Post by madbean » Thu May 14, 2015 5:22 pm

Was watching some business show not long ago, maybe Fox Business, and they went through the historical effect of a rise in interest rates. They were mostly interested in stocks, as all of these kinds of programs are, and they pointed out that historically a rise in interest rates has had a positive effect on stock prices. Not being a data driven person I took their word for it but if true then once again it would seem the PP has this covered. The "Bond Bloodbath", if it occurs, isn't going to happen in isolation.
Last edited by madbean on Thu May 14, 2015 6:01 pm, edited 1 time in total.
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buddtholomew
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Re: Bond Bloodbath? Putting The Jump In Rates Into Perspective

Post by buddtholomew » Fri May 15, 2015 12:44 pm

How can this recent movement in treasuries be considered anything else but manipulation? Trading these ups and downs is a fools errand and the only option is to remain diversified. Can't help but think institutions are making a killing shorting, covering and buying to reap even higher gains. I actually purchased more TLT yesterday as my FI duration had fallen to 5.2 years. 2% of what I contributed doesn't restore the losses, but its better than a 2% loss.

I stick to my theory that this recent swoon was to demonstrate that a rise in yields will not hamper the stock market.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
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