Time to crash the bond market

Discussion in 'Economics' started by silk, Jan 16, 2005.

  1. silk


    Core CPI 2.2% headed higher (historic ten year yield spread over core cpi is 3%) So ten year bond yield could rise 100 basis points to be in line with history.

    capacity utilization rose to 79.2% very close to the 80%+ inflation danger zone.

    fed getting serious.... talk of removing "measured pace"

    Lets show those asian central banks who's boss and dump some bonds on their head this week.

    I always felt like 10% interest was a fair return. 4% seems wacky.
  2. Pabst


    It's more complex than that......
  3. Bowgett


    Don't scare me. I have a lot invested in bonds right now :cool:
  4. The ghost of Bachelier lives. That is the arithmetic spread: the historic geometric spread is considerably different, and if anything, suggests the long rate is about fairly priced. And since markets generally overshoot on the macro trends, it should squeeze tighter.
  5. silk


    So you are saying the real rate of interest that people demand isn't constant but rather a geometic function of nominal rate? I.E. real rate is lower when inflation is low and real rate is higher when inflation is higher.

    I tend to agree with that, but not to the extreme the market is currently displaying. If real ten year rate is 3% when CPI is 3%, i don't think real rate should fall to 2% when CPI is 2.2%.

    I think that using geometric spread could explain a small part of the drop in real rates but not all of it.
  6. qdz3se


    High quality bonds are good for either way, high or low. So there is really no such a thing called "to crash the bond market" as long as it is not a destruction of a nation or the world. But even if it is in that case, I guess, it doesn't matter any way.

  7. milly


    Can ask you guys a question please: eek:

    I am trying to figure out something :confused:

    I have been told that when you trade markets like currencies you should look at the treasury bond markets, but like which one the 2year 5year the 30 year bond. And please can you guys tell what the difference is in them and which one affect the markets like the coming week.

    Many Regards to fine gents,
  8. Nowadays in US bonds it seems that the major players (who set the prices) are NOT PROFIT MAXIMIZERS (like us, regular investors/traders).

    So bond prices are not what one would expect in a "free market" situation, where buyers want to be fairly compensated for their risks.
  9. Bowgett


    Check out links here: http://www.pimco.com/TopNav/Home/Default.htm
  10. gam1111


    Do any of you guys posting on this thread trade bonds?

    Or, are you using the information as direct influence on other asset?

    I know big moves in interest rates affect all stocks( i.e. 3/4 of 1% percent increase or more).
    What about smaller moves in 10 yr treasury note? What does it have the most direct affect on?
    #10     Jan 17, 2005