Yield curve warning signs

[Marshac]

I suspect hedge funds have a bazillion leveraged $$$ in treasuries, but short a couple of them blowing up or melting down I don't know how you'd find out the extent of their involvement.

http://www.treas.gov/tic/mfh.txt

'Caribbean Banking Centers'

 

[Marshac]

it flattened out some more today

And yes, the top one is a fake 

 

[wabmester]

http://www.treas.gov/tic/mfh.txt

Thanks.   I clicked around that site a bit, and I was able to calculate a couple percentages.

The treasury breaks down bond holders into several different classes.

In 1994, mutual funds and "other investors" held 18.4% of our debt, and foreign holders held 14.4%

In 2004, mutual funds and other investors held 7.2% of our debt, and foreign holders held 25.6%

So, the trend wasn't as dramatic as I thought, but it's pretty clear that the mix of treasury buyers has changed significantly, so that could affect how we interpret the signals from the bond market.

 

[ronin]

http://www.treas.gov/tic/mfh.txt

'Caribbean Banking Centers'

Oh wow! 3rd after mainland China. Add in some from the other row and we're talking some serious dough.

 

[laurence]

So the Fed's now hinting that it's quarter point bumps are almost over, what say all on the stabalizing affect on the market this may have? I know the overnight rate doesn't directly correlate with long term, but we may avoid that inflection point.

 

[Marshac]

A failure to increase rates at a 'measured' pace could be interpreted as the feds acknowledging weakness (more than a 'soft patch') in the US economy. I'm really not sure how the market would react...  Even at 3%, should the need arise, the feds don't have much room in which to play....

Check out this chart showing UK rates vs the US rates-

 

[charlie]

TH, I believe that some "very valuey" companies become even
more risky in recessionary times.  The conventional wisdom is to
flee to the "steady eddies" that provide essential services, food,
drugs, etc.  After all, the value premium exists because value stocks
are more risky and per Swedroe, "the risk is likely to show up in
times of economic distress".  This was particularly true in 1929-1932.
In mild recessions like the last one, value stocks do OK.  

OTOH, valuey stocks tend to do better in inflationary times since their
debt is devalued.

Swedroe points out that investors who are likely to see earned income
fall or disappear during a recession should limit their exposure to
value stocks.  Retirees without earned income have a greater
exposure to inflation and should consider a tilt to value since value
stocks provide better protection than growth stocks.  

So depending on your outlook for inflation or recession, you pay
your money and make your choice.  

Since none of us knows the future, the prudent thing is to diversify,
diversify, diversify.

Cheers,

Charlie

 

[Marshac]

Oh wow!  3rd after mainland China.  Add in some from the other row and we're talking some serious dough.

And now time for a warm fuzzy- According to this data, every single one of us here (except for all you non-US folks) went $106 in the hole between feb and mar, increasing the amount 'you' owe to $6673... did you get your monies worth?

I'm sure we owe a lot more.... this is just the treasury securities after all....

 

[cute fuzzy bunny]

Charlie - you is right, although the meaning of 'very valuey' is going to be pretty different from person to person. I'm not as pokey as far as investment braveness as I sound sometimes...I might even go as high as paying a P/E of 15 for something really racy

 

[retire@40]

So the Fed's now hinting that it's quarter point bumps are almost over

When did they hint about that? Last I read, they are talking about going to 4% by this winter before calling it quits for a while. That would be 4 more 25bp bumps I would think.

 

[Marshac]

Link

The Institute for Supply Management said its index of national manufacturing activity fell to 51.4 in May from 53.3 in April, its lowest point in almost two years.

"The biggest leading indicator of the month is telling us that the economy may be heading south and fast," said Chris Rupkey, senior financial economist at Bank of Tokyo/Mitsubishi. "We look for the market to take another projected Fed rate hike off the table. A rate hike at the Fed's June policy meeting is in the cards still, but after that all bets are off."

So they raise it one more time to save face.. and then what? Any guesses what they will say to justify a cessation of rate increases? "Inflation is well contained" or some other nonsense?

 

[retire@40]

Link

So they raise it one more time to save face.. and then what? Any guesses what they will say to justify a cessation of rate increases? "Inflation is well contained" or some other nonsense?

They will say they are in the "neutral zone." At 4%, the rate should not help or hurt the economy.

If the economy keeps picking up speed, you might see it going to 4.50% to 5%, and if a recession hits, they will drop down to 3 again. This is within the next 3 years.

 

[retire@40]

...I would think that would eventually cause people to demand higher wages, thus causing inflation.

And here you go...

U.S. stock futures dip after data shows high labor costs
Thu Jun 2, 2005 08:40 AM ET

NEW YORK, June 2 (Reuters) - U.S. stock futures dipped on Thursday, pointing to a lower market open, after a government report said labor costs of production rose at a swift 3.3 percent annual rate -- well ahead of market expectations and fanning inflationary concerns.

 

[wildcat]

Still 80/20 8)

 

[Marshac]

30 year continues to flatten, now .29 between the 10 and 30 year bonds, down from .36 last week while the 3mo has gained .05

Any guesses if/when it will finally invert?

 

[Marshac]

Just keeping the thread alive

More contraction today- check out that 30-year

Maturity Yield Yester-day Last Week Last Month
3 Month 2.86 2.84 2.79 2.71
6 Month 2.98 2.97 2.95 3.03
2 Year 3.54 3.56 3.56 3.71
3 Year 3.58 3.59 3.60 3.77
5 Year 3.68 3.71 3.73 3.94
10 Year 3.90 3.94 3.98 4.25
30 Year 4.18 4.24 4.32 4.62

 

[Mr._johngalt]

Just keeping the thread alive 

More contraction today- check out that 30-year

Maturity Yield Yester-day Last Week Last Month
3 Month 2.86  2.84  2.79  2.71 
6 Month 2.98  2.97  2.95  3.03 
2 Year 3.54  3.56  3.56  3.71 
3 Year 3.58  3.59  3.60  3.77 
5 Year 3.68  3.71  3.73  3.94 
10 Year 3.90  3.94  3.98  4.25 
30 Year 4.18  4.24  4.32  4.62 

Very interesting! Sure hope I keep getting my 7%

JG

 

[OldAgePensioner]

JG, if you don't mind saying, what's giving you 7%?

 

[Mr._johngalt]

JG, if you don't mind saying, what's giving you 7%?

Junk!

 

[cute fuzzy bunny]

Not very good junk either.

I just like saying "valuey"

 

[saluki9]

For a normal 25 year old that wants an auto-pilot portfolio, perhaps... I'm a little bit more active in moving my money around. Two years ago I was 100% equity, 30% of that in the Russell 2000, and an another 30% international fund... I did pretty well.... now I feel as though the prudent move is to batten down the hatches a bit. We will see

When i'm convinced the worst has past, I will be all in again, I assure you

And like most investors, by the time you think it's good to "jump in again" you probably will be wrong.

It always amazes me working with institutional clients how much brain power they put into calling future market movements and how wrong they are. Then, when you have individuals trying to do the same I find it comical.


I'm not picking on you in particular, just the whole idea.

 

[Mr._johngalt]

And like most investors, by the time you think it's good to  "jump in again" you probably will be wrong.

It always amazes me working with institutional clients how much brain power they put into calling future market movements and how wrong they are.  Then, when you have individuals trying to do the same I find it comical.


I'm not picking on you in particular, just the whole idea.

Yeah, it looks dopey to me also.

JG

 

[BigMoneyJim]

JG, if you don't mind saying, what's giving you 7%?

There were some threads discussing his GM (or GMAC?) bonds not too long ago...March or April I think. You can use the board's search feature to find them. I think they've been downgraded once or twice since then.

 

[retire@40]

There were some threads discussing his GM (or GMAC?) bonds not too long ago...March or April I think. You can use the board's search feature to find them. I think they've been downgraded once or twice since then.

And, if I'm not mistaken, these same bonds are now paying 8%.

 

[riskadverse]

Chairman Alan Greenspan said Monday he does not have a good explanation for why long-term interest rates have been falling at a time when he and his Fed colleagues have been raising short-term rates.
Greenspan called the pronounced decline in long-term interest rates over the past year at the same time the Fed was boosting short-term rates "clearly without recent precedent."

And he went on to say "I'm reasonably certain we would not automatically assume that it would mean what it meant in the past"

He artfully dodged saying the "R" word.
It sounds to me like it's going to be different this time!
Where have I heard that before?