The Bond Market Is About To Punk the Parrots

[MediumTex]

It's just a feeling, but it's based on this recurring dream I have been having of Bill Gross getting hit in the face by a pie.

[buddtholomew]

MT, please share your insights on the impact of an S&P downgrade on LTTs. The initial reaction was one of selling, even though the DOW was down over 200 points.

[MediumTex]

MT, please share your insights on the impact of an S&P downgrade on LTTs. The initial reaction was one of selling, even though the DOW was down over 200 points.

No effect at all.

The sky doesn't care what Chicken Little says.

I think stocks are falling because the market is figuring out that against a backdrop of static wages, high input costs are going to pinch earnings and people are simply not levering back up again.

The S&P call may have just been the catalyst, but there are a lot of other reasons to be gloomy about stocks.

[Gumby]

The rating agencies have been downgrading Japanese govt debt for years, and no one cares — Japanese govt bonds still have very low yields. The rating agencies are a joke.

Ratings are just opinions. And US Govt Debt is still the best horse in the glue factory whether the world likes it or not.

[MediumTex]

Slowly the bond market turned...step by step...inch by inch...

[moda0306]

MT,

So you see things slowly working their way to a 2% or lower yield, not some relatively immediate bond spike?

[MediumTex]

MT,

So you see things slowly working their way to a 2% or lower yield, not some relatively immediate bond spike?

Who knows?

Yields just look high to me right now.

[moda0306]

MT,

One more thing, do you see the yield spread rising due to higher risk of corporate default (and therefore corporates having a smaller tendency to drop) or do you see spreads staying the same or shrinking?

Just curious.

I would assume a bearish attitude on the future of our economy would also accompany an expectation that yield spreads between treasuries and corporate bonds to open up.

[fnord123]

The rating agencies have been downgrading Japanese govt debt for years, and no one cares — Japanese govt bonds still have very low yields.

The Japanese bond auction today was 5x oversubscribed today at rates significantly lower than the US for equivalent durations. That is, for every 1Y in bonds sold, there were 5Y in offers.  This despite Japan being AA2/negative rating from Moody's and similar ratings from other NRSROs.  Just an additional data point that ratings really don't matter.

[MediumTex]

MT,

One more thing, do you see the yield spread rising due to higher risk of corporate default (and therefore corporates having a smaller tendency to drop) or do you see spreads staying the same or shrinking?

Just curious.

I would assume a bearish attitude on the future of our economy would also accompany an expectation that yield spreads between treasuries and corporate bonds to open up.

Hard to say.  The Fed might just start buying up corporate bonds.

[moda0306]

Hard to say.  The Fed might just start buying up corporate bonds.

I think it's "outside the box" transactions like that the Krugmans of the world are screaming at the Fed to make.  Not that I agree... but it'd be interesting to argue the implications of the fed buying corporate bonds, and the potential unwinding of that policy.

[murphy_p_t]

Hard to say.  The Fed might just start buying up corporate bonds.

I think it's "outside the box" transactions like that the Krugmans of the world are screaming at the Fed to make.  Not that I agree... but it'd be interesting to argue the implications of the fed buying corporate bonds, and the potential unwinding of that policy.

I wouldn't bet against the Fed doing that. Heck, they might already be doing it! The Bernank has previously pointed to a rising stock market as evidence of success for his policies.

[moda0306]

Murphy,

Didn't the fed do that by buying mortgage-backed securities from banks?

[MediumTex]

Watch yields fall...

Little by little, just a steady drift down.

As usual, just the opposite of what everyone was expecting.

[murphy_p_t]

Watch yields fall...

Little by little, just a steady drift down.

As usual, just the opposite of what everyone was expecting.

Osama put?

[murphy_p_t]

Murphy,

Didn't the fed do that by buying mortgage-backed securities from banks?

u're right!