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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Zeev Hed who wrote (6846)	10/1/1998 12:24:00 PM
From: Sam	Read Replies (1) \| Respond to of 9980

Zeev, "You should know that bonds earlier this century used to yield 3% or so, and if we have no inflation (and a recession), they could get there again." Actually, I think it was even a little lower than 3%, and mortgage rates were around 3.75-4%. I don't see why we need a recession to get that low. We just need monetary stability. If people actually get confidence that inflation will remain at 1% or lower, then the long bond should go to 3%. Then the question becomes, if it does get that low, does a recession become inevitable? I don't think so. Depends in part on factors well beyond any one individual's control, though, like government policies and growth throughout the rest of the world. Given recent events, that seems like a pretty big risk, however.

To: Zeev Hed who wrote (6846)	10/1/1998 12:29:00 PM
From: Henry Volquardsen	Read Replies (1) \| Respond to of 9980

Zeev, On a fundamental basis I agree with your analysis of long bond yields. But let me throw out something for thought. One of the arguments behind the dramatic rally in equities the last few years had been the flood of savings dollars from baby boomers. Many have pointed out how that drove many equities to levels beyond those called for by previous fundamental analysis. That tidal wave of money seems to have halted and in fact turned around a bit. Where is it headed? By all signs it appears, at least in part, to be headed towards safety and quality. That appears to be US treasuries which is part of why the credit spreads have blown out. In addition this move is happening at a time when the Treasury has a surplus and started paying down debt so the supply of Treasuries, relative to other assets, is decreasing. So while I have been looking at the same fundmentals re the bond as you have pointed out I have to wonder wether we are about to see the same fundmental swamping tidal wave that propelled equities hit the bond market. Food for thought.