What's all this about bond yields & inflation?

Excerpt

Thirty-year Treasury yields slipped four basis points to 4.52 percent and the bond’s extra yield over two-year notes was near a record, indicating money managers are demanding compensation for the risk that inflation will accelerate.


‘Problem With the Dollar’
“The problem with the dollar is that despite the economic recovery, its housing market and employment remain very weak,” said Jane Foley, a senior foreign-exchange strategist at Rabobank International in London.

U.S. housing starts fell to 4.3 percent to a 529,000 annual rate in December, lower than the 550,000 annual rate predicted in a Bloomberg survey.

Thirty-year Treasury yields slipped four basis points to 4.52 percent and the bond’s extra yield over two-year notes was near a record, indicating money managers are demanding compensation for the risk that inflation will accelerate. The Federal Reserve purchased $7.7 billion in Treasuries due from December 2013 to January 2014. Volume in the Treasures market was the lowest in two weeks.

The Stoxx 600 slid 1.4 percent from yesterday’s highest close since September 2008. Kesa Electricals Plc, Europe’s third-largest electronics retailer, sank 9.8 percent after saying profit before tax will be at the lower end of analysts’ projections. Pearson Plc jumped 4.5 percent as the owner of the Financial Times raised its 2010 earnings forecast.

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read whole thing
http://noir.bloomberg.com/apps/news?pid=20601087&sid=aXaVjzqgm7P8&pos=2

Stocks, Dollar Fall as Housing Starts Slow; Goldman Sachs Drops

By Stephen Kirkland and Rita Nazareth
Jan. 19 (Bloomberg) -- U.S. stocks fell, sending the Standard & Poor’s 500 Index to its biggest drop in almost two months, and the dollar weakened as Goldman Sachs Group Inc.’s profit slid and housing starts trailed forecasts. China led emerging markets equities higher while Treasuries advanced.

The S&P 500 lost 1 percent to 1,281.92 at 4 p.m. in New York, its biggest drop since Nov. 23, as 430 of its companies declined. Goldman Sachs sank 4.7 percent to pace a decline in banks after profit slid by more than half as revenue from trading and investment banking declined. The Dollar Index dropped to the lowest level since November, while 10-year Treasury yields declined three basis points to 3.34 percent.

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Who's lying? O'Bie v.2? Berwhackie circa 1935? Stock-sales rep? Bond-baron? or Who doesn't care?

Obama-Bernanke Bonds Show Real Yields Lure Investors (Update3)

By Cordell Eddings

Jan. 18 (Bloomberg) -- The highest inflation-adjusted yields in the world’s most-developed bond markets are appeasing investors waiting for President Barack Obama to begin reducing the more than $1.2 trillion U.S. budget deficit.

Treasury 10-year notes pay 1.88 percent after subtracting consumer price increases, compared with 1.41 percent for German bunds and 1.13 percent for Japanese government bonds. Gilts yield four basis points less than the U.K.’s inflation rate.

Obama and Federal Reserve Chairman Ben S. Bernanke are benefiting from the slowest inflation, excluding food and energy costs, since before the 1960s as so-called real yields lure investors to finance the deficit and stimulate the economy. Foreign buyers, who own more than half the $8.86 trillion in outstanding U.S. marketable debt, have added to their holdings of Treasuries for 19 consecutive months through November.
“There has been grumbling about the deficit, but the market is betting that policy makers will do the right thing and focus on growth, which will help the debt picture in the long run,” Jack McIntyre, a fund manager who oversees $21 billion in debt at Brandywine Global Investment Management in Philadelphia, said. “Real yields are at levels that make them attractive with the lack of inflation pressure the market is seeing, a still weak recovery and a stubborn lack of job growth.”

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“We all have to plug our noses, dive in and accept the higher deficits,” said James Sarni, senior managing partner at Payden & Rygel in Los Angeles, which manages $56 billion. “People are willing to be patient because there is overriding sentiment and hope that Washington will have some credible deficit reduction plan in the future. But the first priority is making sure the economy does not slip back into a recession.”

(oh yes excellent thinking -- hold your nose & keep it in the trough)

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Bill Gross says "au contraire!"

Real yields aren’t enough to entice the manager of the world’s biggest bond fund. Pacific Investment Management Co.’s Bill Gross said investors should avoid dollar denominated assets as “mindless” spending may accelerate inflation, weaken the dollar and lose America’s AAA credit rating.

“The deficit, the debt level, the cost of that debt, ultimately bears a significant burden on an economy,” Gross said in an interview with Margaret Brennan on Bloomberg Television’s “InBusiness” program on Jan. 12.
He estimated that if interest rates went up by 50 percent, or doubled, the deficit would probably expand by $300 billion to $400 billion.

“The problem is that politicians and citizens alike have no clear vision of the costs of a seemingly perpetual trillion dollar annual deficit,” Gross wrote in his January investment outlook. “As long as the stock market pulsates upward and job growth continues, there is an abiding conviction that all is well and that ‘old normal’ norms have returned. Not likely. There will be pain aplenty.”

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"Another nose-holder"
The Standard & Poor’s 500 Index has advanced 26.5 percent from last year’s closing low on July 2, the Reuters/Jefferies CRB Index of raw materials is 33.9 percent higher than in May and IntercontinentalExchange Inc.’s U.S. Dollar Index is up 4.2 percent since November.

“There are structural headwinds to growth but if the U.S. can continue to grow, bondholders will feel better about deficit cuts going forward,” said Eric Pellicciaro, New York-based head of global rates investments at BlackRock Inc., which manages about $1 trillion in bonds. “The big trap Europe and Japan have is in the lack of confidence for above trend growth. Treasuries are looking good where they are on a relative basis.”

read whole thing
http://noir.bloomberg.com/apps/news?pid=20601109&sid=aLoB3peWgG50&pos=10

Who's lying? O'b v.2 as Clinton v.2? Berwhackie? Stock-sales rep? Bond-baron?
or
Who doesn't care .... as long as nobody panics until they're term is done?