i was just looking at pimcos website and billy boys latest report. he seems to have changed his tune. they must be long treasuries up to the ying yangs since he was always calling for rate cuts. this is his august 2006 update below. aptly titled The End of History and the Last Bond Bull Market OBVIOUSLY NOT. http://europe.pimco.com/LeftNav/Featured+Market+Commentary/IO/2006/IO+August+2006.htm
All the bond bulls will capitulate eventually, that is when they come to the realization that there will not be a rate cut anytime soon.
I just can't figure out how this long awaited rate cut ever got priced in. I've been saying this for months, $3.00 gasoline, $650 gold, $4.00 Corn, 1500 SPX is not the impetus for cuts. It just ain't going to happen until there's an IMPLOSION in commodity and index prices. The Fed's handcuffed. Inflation is becoming a bona fide concern yet to me at least, the economy is succumbing to stagflation pressures. For a while the Fed felt that higher oil was the equivalent of a another rate hike. That is oil was it's own brake on further consumer spending. Lo and behold though, gasoline consumption increased over the last year. A sobering fact to policy makers. IMO not only will the 2year eliminate it's future easing premium, it will price in a new round of rate hikes.
And the fact that the economy does not look half as bad as what many had thought is proof that the bond bulls were wrong.
Agreed. I see cooling aspects though. In SoFla where there's high retail occupancy rates, there's now the occasional vacancy that doesn't seem to be renting. My neighbor's gutter company was backlogged 3 months last year. He told me last weekend that he only had work scheduled 3 days forward. I keenly follow sports attendance. While the usual suspects, NY, LA, SF, StL and the Cubs are selling out virtually every game, around the rest of MLB I see more and more crowds in the teens. Small market teams like the Red's are dependant on folks making the drive from Dayton or Lexington. Fewer and fewer fans can afford to. I think bonds are going off a cliff despite this new economic slowness. Inflationary pressure will top lower retail sales any day of the week with both investors and Fed policy.....
Pimco's Gross Says Fed Will Slash Rates to 4.25% (Update4) By Elizabeth Stanton and Chris Cooper Jan. 5 (Bloomberg) -- Bill Gross, manager of the world's biggest bond fund, says the Federal Reserve will lower its benchmark interest rate by a percentage point to 4.25 percent this year to support economic growth. The Fed will start cutting its target for the overnight lending rate between banks in the first half as the economy slows, he said. The nominal growth rate, unadjusted for inflation, was 3.8 percent during the third quarter, compared with 5.9 percent in the second quarter. ``Slower economic growth, certainly slower nominal growth, ultimately forces the Fed to lower'' the cost of funds, Gross, chief investment officer at Pacific Investment Management Co., said in an interview. The rate may be cut to ``below the nominal growth rate in order to re-stimulate assets and re-stimulate productive growth in the economy.'' Ten-year U.S. Treasury note yields will fall to about 4.50 percent, Gross wrote in a report published on his firm's Web site yesterday. The 10-year yield, 4.60 percent at 5:08 p.m. in Tokyo, has risen in the past two years. The Newport Beach, California-based firm, a unit of Munich- based Allianz SE, oversees $642 billion, including the $100 billion Pimco Total Return Fund. So-called nominal growth in U.S. gross domestic product of 4 percent ``is not enough to support an asset-based economy which has built-in costs of debt averaging 5 percent plus,'' Gross wrote in the report. With a decline to 4.50 percent yield at year-end the 10-year note would return about 5.4 percent, according to data compiled by Bloomberg. It would be the biggest gain since it returned about 15 percent in 2002, according to index data compiled by Merrill Lynch & Co. GDP and Fed On three occasions in the past 15 years when the growth rate of nominal GDP dropped at least a percentage point below the Fed's benchmark, stock prices or housing prices or both declined, and the central bank subsequently lowered the target to at least a percentage point below the growth rate to blunt the damage to the economy, according to Gross. The median price of an existing home fell from a year earlier in November, the fourth consecutive monthly drop. The Fed raised its target for the federal funds rate in quarter-point increments at 17 straight meetings from June 2004 to June 2006. Gross underestimated how much the Fed would raise rates in the past two years and when it would stop. In June 2005, he predicted the increases would stop at 3.5 percent. In May, he predicted 5 percent was the limit. Fund Holdings Gross has boosted the Total Return Fund's holdings of debt maturing in three years or less, which typically benefit most from Fed rate cuts. Cash equivalents including debt maturing in less than a year accounted for 47 percent of its interest-rate risk as of Nov. 30, the firm said on its Web site. That is the biggest share the fund has reported in six years of data. Debt maturing in one to three years accounted for 24 percent of the fund's interest-rate risk, or duration, up from 19 percent in October and the most since August 2005. Gross's fund advanced 4 percent last year, outperforming 55 percent of its competitors, according to Morningstar. It returned 5.65 percent on average in each of the past five years, beating 89 percent of its peers. (c) Bloomberg L.P. Last Updated: January 5, 2007 03:12 EST
Bonds are really just following EuroBunds and Gilts in their 2 month puke-fest. Bunds have backed up about 60bps (to 4.45%) in about 10 weeks - they turned on the late March Fed meeting. Gilts are a similar picture (to 5.30%). Futures are pricing in 3(!) more rate rises from the ECB (to 4.50%) and at least 2 more from the BOE (to 6.00%+). A doesn't seem to have occurred to the market yet that such a sharp backup in rates in Euroland and the UK will have some impact on growth there too - eventually anyway.... Watch out below on European house prices!! Q1