Bonds & Interest Rates

Chart Predicts a Dire Endgame for Interest Rates

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Posted by Rick Ackerman - Rick's Picks

on Tuesday, 14 March 2017 07:06


This proxy for T-Bonds has quietly slipped into no man’s land with the recent breach of December’s bombed-out lows near 116.80. Even before this occurred, TLT looked like a good bet to fall to at least 111.97, the midpoint Hidden Pivot support of the pattern shown. But it would require only a breach of the July 2015 low at 114.88 to do very serious damage to the long-term chart. If the 111.97 target is hit, it would correspond to a rise in long-term interest rates to about 3.37% from a current 3.19%.  And if TLT were to fall all the way to the D target at 100.79, yields would be around 3.84%. For borrowers in the U.S. and around the world, this would be more than just a turn of the screw. Indeed, if stock prices were to fall simultaneously as seems logical, it would crush them beyond any hope of recovery. Meanwhile, any counter-stimulus equal to the problem would be tantamount to hyperinflation. 

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...also: FOMC: Don’t Get Lost in All the Hoopla


Bonds & Interest Rates

FOMC: Don’t Get Lost in All the Hoopla

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Posted by Bill Hall - Money and Markets

on Friday, 10 March 2017 09:12

The popular financial press is making a big deal about the Fed’s almost-certain 25-basis-point hike in the discount rate that is set to occur at next week’s Federal Open Market Committee meeting. But don’t get lost in all the bluster and hoopla.


Because the Fed’s decision will have very little impact on your portfolio.

Since a picture is worth a thousand words, I am going to use four easy-to-follow charts to make my point.

To get a true picture of what’s going on, we first need to step back and take a macro view of what the Fed is up against. The chart below shows the history of Federal debt held by the public since the nation’s founding.

Click image for larger view

As you can see for yourself, when the financial crisis hit in 2008, federal debt exploded to its current level of $14 trillion. And get this — the $14 trillion doesn’t even count the federal agency debt supporting farm loans, home mortgages and a variety of other programs, which total another $5 trillion and puts the total official debt level at about $19 trillion.

And then when you throw in the government debt related to unfunded liabilities for federal social service programs, like Social Security and Medicare, the total debt skyrockets to an estimated $130 trillion. No matter how you slice it, total federal debt has become a BIG number.

To make matters worse, at the same time the U.S. government was levering up … so was corporate America. This chart from the Federal Reserve Bank of St. Louis shows that corporate debt in the U.S. has risen about 60% since the first quarter of 2009.



Bonds & Interest Rates

Fake Risk, Fake Return?

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Posted by Axel Merk - Merk Investments LLC

on Thursday, 02 March 2017 08:56

With seemingly everyone from the blogosphere to the Tweeter-in-chief chiming in on fake news, have investors considered their risk/return profile may also be “fake”? When it comes to investing, who or what can we trust, is the market rigged, and why does it matter?


For eight years in a row now, an investment in the S&P 500 has yielded positive returns.1 In recent years, expressions like “investors buy the dips” and “low volatility” have become associated with this rally. 

In the “old days”, investors used to construct portfolios that, at least in theory, provided a risk/return profile that they were comfortable with. For better or worse, I allege those “old days” are over. To be prepared for what’s ahead, let’s debunk some myths.



Bonds & Interest Rates

March Rate Hike Odds Surge to 80 Percent: New Standard for 'Surprisingly Strong' Economy

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Posted by Mike "Mish" Shedlock - Global Economic Trend Analysis

on Wednesday, 01 March 2017 08:24

Rate hike odds surged as high as 80% following comments today from two Fed presidents. The odds are 62% as I am typing now. Let's investigate the spike.

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The Financial Times reports Market Odds of March Rise in US Interest Rates Hit 80%.



Bonds & Interest Rates

Gold, Second Fed Hike and Interest Rates

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Posted by Arkadiusz Sieron

on Friday, 24 February 2017 07:30

The narration of reflation and ‘Great Fiscal Rotation’ imply that the Fed will hike interest rates in a more aggressive way in a response to accelerated growth and higher inflation. We have already covered the Fed’s likely policy in 2017 in the previous edition of the Market Overview, but let’s discuss the impact of higher interest rates for the U.S. dollar and gold once again. It is widely believed that higher interest rates are bullish for greenback and bearish for the yellow metal. Is that really so? Some analysts do not agree with that opinion, pointing out that the U.S. dollar did not rally during Fed tightening cycles. Therefore, the hawkish Fed may be actually good for gold, they argue.

They are right, in some senses. Just look at the chart below: the tightening cycle which took place in 2004-2006 was actually bearish for the greenback and bullish for gold, while the U.S. dollar was essentially traded sideways during ZIRP.

Chart 1: The broad trade weighted U.S. dollar index (green line, right axis) and the effective federal funds rate (red line, left axis, in %) from 1973 to 2016.


However, the three previous tightening cycles corresponded with the bullish dollar. Actually, the federal funds rate does not matter. As we have emphasized many times, what really counts for gold prices are the real interest rates, not the federal funds rate. The chart below illustrates that truth (we use the 1-year treasury yield adjusted for the CPI, since the yields at 10-year inflation-protected treasuries are available only since 2003).

Chart 2: The price of gold (right axis, yellow line, London P.M. Fix), the federal funds rate (red line, left axis, in %) and the real interest rates (green line, left axis, as 1-year treasury yield less CPI year-over-year, in %) from 1953 to 2016.



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