Wednesday, February 16, 2005

Duck and Cover

by Tom Bozzo

It turns out that Alan Greenspan doesn't understand why long-term rates are so low, either. In Fed-speak:
But none of this [factors yielding a lower inflation risk premium] is new and hence it is difficult to attribute the long-term interest rate declines of the last nine months to glacially increasing globalization. For the moment, the broadly unanticipated behavior of world bond markets remains a conundrum. Bond price movements may be a short-term aberration, but it will be some time before we are able to better judge the forces underlying recent experience.

The 10-year Treasury note yield rose 6 basis points earlier today, and is up almost 0.2 percentage points since last week's trough. Greenspan has made me feel better about running away from long-term debt (as an asset in our portfolio, not the unavoidable fixed-rate mortgage) last year.
Well, it's got to be better than buy 3-month Bills, which only recently appear to be yielding better than the Discount Rate.
I probably should have clarified, non-retirement portfolio.

With short-term uses for our funds aplenty, we weren't keen on participating in another '94 or '99 for what passes for high yields these days.

(Note, I think Ken meant federal funds rate instead of discount rate, in which case the reference is to the 3-month T-bill yielding, as of this moment, 8 basis points over the fed funds target of 2.5%.)
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