Nothing would derail the Fed’s great reflation/recovery experiment like higher interest rates. Several notable investors including David Einhorn (see Einhorn’s thoughts here) and Julian Robertson (see Robertson’s thoughts here), have expressed their concerns over the potential for higher interest rates. The great Richard Russell of the Dow Theory Letters has long feared a spike in interest rates. In a recent note he explained that the end of quantitative easing has bond investors worried over the future of interest rates. Russell believes higher rates are the next big move in the bond market:
“Older subscribers may remember that I said that the Fed could continue its “quantitative easing” (printing money) until the bond market says it can’t. Below is a daily chart of the 30-year Treasury bond. The bond market doesn’t like what it sees. I view the pattern on this chart as a huge, down-slanting head-and-shoulder top with the bond sitting right on support. The bond appears weak, and if support is violated, interest rates will be heading higher. And that’s the last thing the Fed wants at this time.”
Source: Dow Theory Letters
i agree that long term rates are going up, and that the end of fed purchases of non-treasury securities will exacerbate this trend, which is why i own tbt. but i don’t think the fed thinks this will affect the recovery as much as an increase in short term rates, which they will increase modestly over the next year (likely through an increase in the rate on excess reserves, which seems like the new fed plaything). i view an increase in the term yield spread as good for financials, which is why i am overweight there. if the recovery falters, then a quick switch into the higher long end would make sense. next? UN:F [1.8.2_1042] please wait... Rating: 0.0/5 (0 votes cast)
[Reply]
Russell says: higher interest rates is “the last thing the Fed wants at this time.”
I say, therefore, that the Fed will make sure that the last thing they want WON’T HAPPEN. THEY’LL BUY AS MANY TREASURY BONDS AS IT TAKES TO KEEP THE CHART FROM BREAKING DOWN.
CS UN:F [1.8.2_1042] please wait... Rating: 5.0/5 (2 votes cast)
[Reply]
The Country needs the Fed Like a Hole in the Head UN:F [1.8.2_1042] please wait... Rating: 0.0/5 (0 votes cast)
[Reply]
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Nothing would derail the Fed’s great reflation/recovery experiment like higher interest rates. Several notable investors including David Einhorn (see Einhorn’s thoughts here) and Julian Robertson (see Robertson’s thoughts here), have expressed their concerns over the potential for higher interest rates. The great Richard Russell of the Dow Theory Letters has long feared a spike in interest rates. In a recent note he explained that the end of quantitative easing has bond investors worried over the future of interest rates. Russell believes higher rates are the next big move in the bond market:
“Older subscribers may remember that I said that the Fed could continue its “quantitative easing” (printing money) until the bond market says it can’t. Below is a daily chart of the 30-year Treasury bond. The bond market doesn’t like what it sees. I view the pattern on this chart as a huge, down-slanting head-and-shoulder top with the bond sitting right on support. The bond appears weak, and if support is violated, interest rates will be heading higher. And that’s the last thing the Fed wants at this time.”
Source: Dow Theory Letters
i agree that long term rates are going up, and that the end of fed purchases of non-treasury securities will exacerbate this trend, which is why i own tbt. but i don’t think the fed thinks this will affect the recovery as much as an increase in short term rates, which they will increase modestly over the next year (likely through an increase in the rate on excess reserves, which seems like the new fed plaything). i view an increase in the term yield spread as good for financials, which is why i am overweight there. if the recovery falters, then a quick switch into the higher long end would make sense. next? UN:F [1.8.2_1042] please wait... Rating: 0.0/5 (0 votes cast)
[Reply]
Russell says: higher interest rates is “the last thing the Fed wants at this time.”
I say, therefore, that the Fed will make sure that the last thing they want WON’T HAPPEN. THEY’LL BUY AS MANY TREASURY BONDS AS IT TAKES TO KEEP THE CHART FROM BREAKING DOWN.
CS UN:F [1.8.2_1042] please wait... Rating: 5.0/5 (2 votes cast)
[Reply]
The Country needs the Fed Like a Hole in the Head UN:F [1.8.2_1042] please wait... Rating: 0.0/5 (0 votes cast)
[Reply]
Add your comment below, or trackback from your own site. You can also subscribe to these comments via RSS.
Be nice. Keep it clean. Stay on topic. No spam.
Name
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You can use these tags:<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>
This is a Gravatar-enabled weblog. To get your own globally-recognized-avatar, please register at Gravatar.
Notify me of follow-up comments via e-mail
© 2009 pragcap.com · Login.
Nothing would derail the Fed’s great reflation/recovery experiment like higher interest rates. Several notable investors including David Einhorn (see Einhorn’s thoughts here) and Julian Robertson (see Robertson’s thoughts here), have expressed their concerns over the potential for higher interest rates. The great Richard Russell of the Dow Theory Letters has long feared a spike in interest rates. In a recent note he explained that the end of quantitative easing has bond investors worried over the future of interest rates. Russell believes higher rates are the next big move in the bond market:
“Older subscribers may remember that I said that the Fed could continue its “quantitative easing” (printing money) until the bond market says it can’t. Below is a daily chart of the 30-year Treasury bond. The bond market doesn’t like what it sees. I view the pattern on this chart as a huge, down-slanting head-and-shoulder top with the bond sitting right on support. The bond appears weak, and if support is violated, interest rates will be heading higher. And that’s the last thing the Fed wants at this time.”
Source: Dow Theory Letters
i agree that long term rates are going up, and that the end of fed purchases of non-treasury securities will exacerbate this trend, which is why i own tbt. but i don’t think the fed thinks this will affect the recovery as much as an increase in short term rates, which they will increase modestly over the next year (likely through an increase in the rate on excess reserves, which seems like the new fed plaything). i view an increase in the term yield spread as good for financials, which is why i am overweight there. if the recovery falters, then a quick switch into the higher long end would make sense. next? UN:F [1.8.2_1042] please wait... Rating: 0.0/5 (0 votes cast)
[Reply]
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