News from the bond markets

[wildcat]

I saw on CNBC today that foreign investments in our bonds came in much less than expected. I don't worry too much about it but isn't this a bad sign. The economist mentioned it was bad for bonds but from what I know it has much more of an impact than just the bond market, i.e. we can support the deficit as long as foreigners continue to buy our bonds (the "x" factor if you will). Thoughts?

 

[Art]

isn't this a bad sign.  Thoughts?

Not to put too fine a point on it, but this could be our worst nightmare coming true.

Foreigners own half our debt. They prop up this house of cards known as the U.S. economy.

Unless Greenspan sharpens his pencil, and makes them an offer they can't refuse (MUCH higher rates at the next Fed meeting)- foreign banks, governments and investors are going to realize that the risks of U.S. bonds are not justified by the rewards, and if they bail out big-time, we are all extremely SOL.

And yes, this catastrphe would devastate not only the bond market, but ALL financial markets, including stocks.

Other than that, no worries.

 

[wildcat]

http://biz.yahoo.com/ap/050617/economy.html?.v=11

This doesn't make me especially comfortable. I would imagine just like any other bonds the attractiveness depends on the economic condition of the issuer. At some point the Asian buyers may become a bit leary and stop buying...there goes the neighborhood. As I mentioned the recent report noted a slowdown and it was below estimates.

 

[cute fuzzy bunny]

Of course they may have simply reached their ideal asset allocation for our bonds. I mean, even if you were getting a great price on reits theres a point where you're going to stop buying them to keep yourself from getting too heavy in that class, right?

Its also possible theres a political motivation. Some part of some negotiation may have involved them buying more of our debt for a period of time that stops now, or for them to stop buying our debt in exchange for some other favor.

Could be a lot of things...

 

[moghopper]

If they don't buy our bonds, how are we going to buy their crappy salad shooters?

Maybe we should all see Dr. Phil (AKA Satan), and read "Co-Dependent No More"

 

[brewer12345]

Hence my motivation to own GIM, EFA and PCRDX.

 

[Art]

Hence my motivation to own GIM, EFA and PCRDX.

No capisce... would you please tell me what these are? I need to learn this stuff.

 

[wildcat]

GIM - closed end bond fund; good reco by Brewer & I have a small position in it
PCRDX - Pimco's commodity fund; one of my fav plays right now
EFA - International Index ETF; I have been throwing NEW money in Intl' value fund; unhedged is better diversifier

All weak dollar plays
All weak US econ/stock play

 

[Art]

Thanks, wildcat.

 

[brewer12345]

Good summary by the cat. One other note: GIM is an unhedged foreign bond fund mostly invested in developed economy bonds (smidgens of stuff like South Korea added for interest).

 

[al_bundy]

On Squawk Box a Merryl Lynch executive also said that some of the firm's wealthy clients have moved money out of real estate and into bonds. Didn't say what kind of bonds though.

 

[wildcat]

If they were smart I would say foreign. I caught wind of an article in the most recent Businessweek I believe and it talks about alternative investments if anyone wants to get a pretty good explanation for holding such investments.

 

[Michael]

If they don't buy our bonds, how are we going to buy their crappy salad shooters?

In the latest Barrons, Bill Gross suggested that in a year or two the Chinese could decide to depend upon internal growth rather than export growth. This could lesser their demand for US bonds.