Thursday, 2 February 2012
Interest rates not following macro fundamentals (yet?)
The chart of Absolute Strategy Research shows that the interest rates in the US very much, even more than ever, have lagged the macro news.
Because of all the manipulations of the FED the yields are no longer what inflation and economic growth indicate, but what the market thinks what the FED will do together with an unfaltering love with the New Normal with endless deleveraging.
It is not a sound situation when interest rates no longer show how the economy is doing, because f that wrong investment decisions are triggered.
The rational investor is selling (already for quite some time), the market has lost its senses now they don’t translate the traditional fundamentals into higher yields (the rational investor buys high yield now).
Bianco advises to continue buying, the parties that buy against any price are still buying and indicate even to go buying more: the FED thinks mortgage backed securities are an attractive instrument to get the housing market moving again. Obama supports this view as we are seeing this week.
ASR thinks the yields have to rise 1% and even that should be not enough.
Strategas sees the end of positive economic surprises, 1.5% growth in the US is the best one an get after Q1 and is not following the advice of ASR to tear Treasuries into pieces.