There’s no mystery for the labeling of inflation-adjusted yields as real yields. Real, as any dictionary will advise, is a synonym with genuine. Thus, the real, or genuine yield one could expect to receive is deflated by the inflation rate. For those intent on acquiring nothing less there are choices in the world of government paper. In one corner are the standard Treasury issues that dispatch nominal yields and so offer no protection from a future of rising inflation. In the other, Treasury inflation-protected securities, or TIPS as they’re known, which deliver a real yield that buyers secure for the life of the bond.
Monthly Archives: October 2005
THE RESILIANCE FACTOR
Today’s report on the economy’s third-quarter performance is the first major data release since Ben Bernanke was named as Fed Chairman Alan Greenspan’s successor. Will the report from the Bureau of Economic Analysis impact next week’s FOMC meeting at the Fed?
THE HIGH COST OF INACTION
A new oil refinery hasn’t been built in the United States in nearly 30 years. If someone finds that surprising, they probably haven’t been listening to the latest round of Washington chatter on the topic of creating incentives for spurring development of new facilities to meet rising demand for gasoline.
WAITING, WORRYING, AND REPRICING
The Bernanke era (or should we say the era of anticipating the Bernanke era?) is just about 48 hours old, but it seems intent on distinguishing itself from the Greenspan age by rousing the bond market to rethink its formerly dispassionate view of the future. Whether the new-found sobriety among those who trade debt lasts beyond tomorrow is unclear, but for now there’s a new elephant in trading rooms across the country.
READING TEA LEAVES IN THE NEW ERA
A day after Ben Bernanke was named successor to Alan Greenspan, traders of Fed fund futures reminded the Fed chairman-nominee that interest rates should keep rising well into next year. Or, perhaps traders are expecting Bernanke to take a tough stance on inflation by hiking rates in order to prove himself a muscular monetary hand early on. In any case, the price of the the April 2006 contract dropped today in anticipation of Fed funds rising to around 4.5% by next spring.
WELCOME TO THE JUNGLE
The long wait for a name is over. Now begins the long wait to see how the new kid on the block performs.
Meanwhile, we have the president’s assurances. “Ben Bernanke is the right man to build on the record Alan Greenspan has established,” Bush said today in his announcement that the chair of the White House’s Council of Economic Advisors has been nominated as successor to the demigod Alan Greenspan, otherwise known as the chairman of the Federal Reserve.
LIFE BEYOND THE 10-YEAR
Yield competition is the new new thing for the fixed-income market. With inertia dominating trading in the benchmark 10-year Treasury Note of late, yield-hungry investors who think bond traders are asleep at the switch may be inspired to look for more alluring quarry elsewhere.
HIGH ANXIETY
Inflation is said to be a monetary phenomenon, or so monetarists like to say. But today’s October manufacturing survey from the Philadelphia Fed suggests that strengthening economic activity and rising prices aren’t necessarily strangers.
OILY BUBBLES
Is the bull market in oil history?
More than a few investors have suffered from believing in no less at various points in the last few years. When a barrel of oil changed hands at $30, many said it would never reach $40. When it did, $50 a barrel was thought to be impossible. When $50 was crossed, the shock and awe was even more potent, as it was when crude passed through $60, and when it recently touched $70. The sight of dowdy oil-company shares climbing right along with crude’s price was equally surprising for many investors.
WHO MOVED RISK’S PAYOFF?
Risk is taking a beating these days. Reaching for higher performance by way of greater risk is a time-honored means of boosting profits, of course. But the strategy can also bite back in times of uncertainty or worse, as this year’s performance in various corners of the equity market suggest.