Yield Booking

Will bonds ever return to “normal?”

It’s a good question. For over four years the Fed has kept short rates near zero. With inflation running at 2% and the Fed’s target at zero, short rates have become a black hole, from which nothing seems to emerge. Long rates have drifted inexorably towards the event horizon surrounding the Fed’s short-rate singularity.

But all things—even black holes—eventually come to an end. The Fed currently projects that the economy will gradually heal, and that unemployment will move below 7% by the end of 2014, and below 6% in 2017. Charles Evens, President of the Chicago Fed, has proposed that the Fed keep rates low and the QE flowing until unemployment gets below 6.5%. That would be sometime in late 2015—but of course, the further out the forecast, the greater the uncertainty.

Still, it’s useful to know current expectations. So far, the Fed’s monetary spigot has kept the economy moving. It looks like it will be a while before they take that punchbowl away.

Douglas R. Tengdin, CFA

Chief Investment Officer

If you have questions or comments, please write to us at questions.

By |2013-04-26T09:39:31+00:00April 26th, 2013|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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