The US dollar (through bond interpretation)

[maolivie]

My points on the dollar through bond interpretation

1) unemployment is extremely low
2) Investors want less risky assets - this is why bonds soared the past couple of days. Investors want OUT of Chinese stocks, especially after earlier this week.
3) BONDS - the yield curve shows that 2 year bonds will make more than 10 year bonds in interest. Let's face it, this obviously means investors don't want to lock money in for 10 years since they won't be compensated with high interest rates. why not? It won't rise!
4) When bond prices go up (which they currently are), the yield rate decreases - since it is an inverse relationship. This means the spread between junk bonds and Government bonds is going to increase (it is very tight right now)
5) When the spread increases, firms will start buying the junk bonds to be able to claim the rates they want in their portfolios, regardless of the risk. They have the money to do so
6) the dollar is still strong. It is the most stable, and offers investors minimal risk in a time where everything else includes high risk.

The reason for an ever rising economy, even after crashes, repressions, and depressions - cycles that will never end

 

[grantx]

MAO,

Just a few of my thoughts. Isn’t it also a possibility that no-one wants anything over two-years because the fiscal situation/trade deficit could deteriorate further, pushing down bond prices/raising yields? Then the US will have to raise rates to finance the budget deficit, the US-Japanese interest rate differential will maintain (or expand) then we can resume Yen carry-trades.

“the spread between junk bonds and Government bonds is going to increase”. I think this thinking was behind the LTCM strategy. As we know, junk and sovereign de-coupled, ie they both went south.

“They have the money to do so”. A few weeks ago in the International Herald Tribune an article basically said there is so much money in the system, but the financial markets do not have the capacity to absorb it all. Interesting point. OK, maybe a big sell-off in China, then everyone will pile back in (“cheap at these levels”).

I see you live in New York. Do you know Tony Soprano?

Grant.