I've Wondered Why Bonds Defied Inflation Logic... now we know

Discussion in 'Trading' started by gnome, Oct 12, 2008.

  1. For the last several years, the money pump has been running full-tilt.

    And in spite of the Gummint preaching "inflation is 2%... don't worry, be happy", the REAL inflation rate has been closer to 10%.

    Yet all along, the bonds ignored the obvious inflation and held in at high prices (low yields).

    It has become apparent... smart money was buying bonds as a safety play against exactly what is happening now.

    Bonds are down about 10%, while nearly EVERYTHING else is down 40-ish%, and more.
  2. Stockholders eat well, bondholders sleep wel.
  3. "Quality" bonds have held up.

    Some Hi-Yield bonds have plunged 50%.
  4. Take a look at NY municipals- you might adjut your view.
  5. Change my view? That [perceived] high-quality bonds have held up and poor quality have tanked?

    Isn't NY in financial strife? Would they be considered high-quality?
  6. U.S. Government bonds are the only ones to be holding. It will be a bloodbath when all those munis get their risk repriced. :D

    No more cheap money @ 3% hahaha
  7. Its not that, rather, it was fear of the banking system which still is the prevailing emotion.

  8. I've posted previously that muni bonds hold a balance right now between default risk, interest rate risk (rising) and the likelihood of tax hikes upon the wealthy (those who hold munis) with a democrat controlled presidency and congress.

    While it may not be an exact corollary due to a) nature of the security, b) issues related to ARPS and leverage, and c) panic sales; national muni closed end funds are trading down to 30% discounts. Therefore i would argue for these securities, much of the risk is priced in (with panic sale discounts added on top). Historically, by the way, some of the discounts on these securities are somewhat minor (under 10%) and at times have traded at a premium.

    No question, there will be buys to be had in munis, muni funds, etc... question is when to buy?
  9. Should have NEVER been anyway. GreenScam should be tried as a TRAITOR!
  10. Something I don't understand gnome, the smart money had been buying up bonds for years to shield themselves against a 2 month crisis? Are you implying this will get much worse?
    #10     Oct 12, 2008