The Bond Market, Fed, Coronavirus And Recession

While the wild gyrations of the stock market usually capture the lion’s share of attention; something beneath the surface was happening in the bond market as a result of Coronavirus (COVID-19) pandemic.

Why Is The Bond Market Important?

Personally, I track the Bond market more closely than the stock market due to the fact that the underlying data tells a much different story with respect to health of the economy.

The Bond market is more efficient due to Bond ratings, interest rate derivatives, credit worthiness, publication of bond-yield curves, spreads and the predominance of long-term institutional investors.

Will The Bond Market Crash?

The returns for the Bond market over the last 40 years has been insane. Every time we believe we have reached a floor with respect to rates; they still go lower.

While we may not agree with everything he says, there are nine decades of wisdom buried in Warren Buffett’s quotes.

Bond Market Future Performance?

Before the March 15th, 2020 cut; the intermediate term Treasuries (average duration of 7-8 years) had around 3% upside if the 10 year yield goes all the way to zero.

Effect of Fed Reserve Requirements

The most under reported part in the Fed announcement which went unnoticed was that the reserve requirements have been cut to zero. This could have massive ripple effects depending on how aggressive the banks get.

Is Bond Market Predicting Inflation?

I-Bonds are now yielding over 7%. And these are the most secure form of debt backed by the US Treasury.

In order to avoid you money losing any value it is better to invest in Income producing assets.

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