Wed August 21 2013
Bill Fleckenstein discusses whether the FED has lost control of the bond market. The underlying assumption of course is that the FED in fact was in control of the bond market. Rates are set on the floor of the Chicago Board of Trade every day. Numerous studies show the FED follows rather than leads the market.
I suggested this past weekend that the big surprise may be just how fast rates rise. In this clip one can see 1994 when rates rose. It may just be that while FED buying appeared to support higher bond it may be that the weak ecnomy meant that there was not a big demand for debt. Now however
a better economy means more demand for debt
municipal woes breaking out all over have resulted in lower muni bond prices
a general fear of default, remeember Europe, Club Med, has bond markets on a fear watch.
1994 thirty Year Yields
For some reason typepad is not posting the chart. In 1994 thrty year yields ran from 5.8 to 8.2 in a year. Now rates have already risen from 2.5 to near 4%.
As Jim Rogers says, the FED chair is A player in the bond market, not THE player.
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