Friday, April 25, 2008

The Sarcasm Report v.18

U.S. Notes Decline, Headed for Biggest Two-Week Loss Since 2001

April 25 (Bloomberg) -- Treasuries fell, with two-year notes headed for the biggest two-week decline since November 2001, as traders increased bets the Federal Reserve will stop cutting interest rates at its policy meeting next week.

Because we all know how smart the "traders" were in November 2001. The rate on the two-year note hit 3.22% on November 26, 2001. It peaked at 3.78% on March 25, 2002.

Would it be in bad taste to point out that the rate on the two-year note bottomed at 1.10% on June 13, 2003? Apparently "traders" didn't realize that the economy wasn't done tanking yet.

For what it is worth, the Nasdaq put in its final bottom on October 9, 2002. The bottom was 43% lower than it was on November 26, 2001.

Oh well, I'm sure these rising rates will be just what the housing market needs to recover though.

Source Data:

FRB: Historical Two-Year Treasury Yields
Yahoo Finance: Historical Nasdaq


MAB said...

FWIW, for the most part I've decided to play this downturn at the short end of the interest rate curve. It has worked well so far (real returns). But if the rates stay low as they did when Greenspan got medievel with rates after the dot-bomb bust, I'll be lucky to break even through the cycle after inflation & taxes.

The short end seemed a safe bet given my personal inflation expectations. I am more than a bit surprised at the willingness of investors to ignore inflation though. This has me concerned about being at the short end. I really thought investors (especially foreigners) would demand higher interest rates. Perhaps so many have so much invested in asset inflation that they have chosen to just ignore CPI inflation. Apparently, "hope" IS an investment strategy. HOPE now. Buy & HOPE. HOPE & pray. HOPE Sound investing. HOPE fully invested. More HOPE vs HOPEless.

Where the heck are the bond vigilantes? They must all own TIPS.

Stagflationary Mark said...


Where the heck are the bond vigilantes? They must all own TIPS.

I've seen this pattern many times. When interest rates rise apparently due to inflation concerns, TIPS get sold off too. That pushes the real yield up.

Yet, if one looks back to the 1970s, real yields were negative when inflation soared. Go figure.

I'm reminded of the following article.

"I am an old school guy," Ake added. "Ten-year notes are supposed to trade off inflation.

"People are betting on inflation coming off because of a weaker economy," Ake said. "But you have a bunch of young punks who were not alive in the 1970s ... people have lived without it for so long that they have forgotten how insidious it is."