tag:blogger.com,1999:blog-2986124651030959736.post8933062135057198474..comments2024-03-29T08:03:35.151-05:00Comments on Stocks, Bonds & Politics: The Difficult Path to Interest Rate Normalization/Added 50 of the Stock CEF CHN at $21.2/Pared Trade Roth IRA: Sold 50 GJR at $20.48-Bought 50 PFLT at $14.24/Sold 331+ of the Stock CEF EXG at $9.772-Regular IRATENNINDEPENDENThttp://www.blogger.com/profile/17444227958539559639noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-2986124651030959736.post-14554457179992739042013-06-03T19:33:37.392-05:002013-06-03T19:33:37.392-05:00ZIRP will last longer than QE, most likely for ano...ZIRP will last longer than QE, most likely for another two years or so. It is ZIRP that anchors the short end of the curve to abnormally low levels. The five year treasury gained .4% in yield during March while the two year treasury gained .1% by going from a .2% to a .3% yield. <br /><br />ZIRP will have the most impact on the shortest maturities. <br /><br />The 3 month treasury bill was at .03% on 5/1 and .03% on 5/31. <br /><br />The 6 month bill actually fell in yield, going from .06 to .04%. The one year bill declined to .07% from .08% on 5/1. <br /><br />The two year is heavily influenced by the federal funds rate. The impact of ZIRP is significantly less on the 3 year, which rose .2% in May, and that maturity and the five year need FED purchases to keep them at abnormally low levels. <br /><br />I cite in the blog the NY FED' site that shows the maturity numbers for the treasury securities purchased by the FED. You can see that the FED is buying these shorter term notes. <br /><br />As long as the FED continues ZIRP, the 3 month T Bill through the 2 year note will continue to be anchored near zero and will provide negative real rate of returns. This is why an investment grade short term bond with less than a 2 year duration lost so little in March compared to funds with higher durations. <br /><br />As the duration and maturity length extends further out, ZIRP will lose more of its ability to impact rates. QE is the monetary policy that has the purpose of lowering yields for those maturities to abnormally low levels. Without QE, the yield curve would be very steep with the short term maturities near zero and the longer maturities finding their market levels at much higher levels than now. <br /><br />QE is expected to end by many, including me, within the next nine months while ZIRP will continue into 2015 and then federal funds will likely be raised slowly. Without QE, the five to 30 maturity spectrum would rise to market based rates and the market will start that rate normalization process before the FED ends QE. The rise in yields and decline in prices for the 4 year and higher durations last month is due to the rate normalization process tied to the anticipated end of QE not ZIRP. The rise in treasury yields was fairly constant for the 5 through 30 year maturities. The markets expectations for inflation went down for those maturities last month so inflation has to be excluded as an explanation. <br /><br /> TENNINDEPENDENThttps://www.blogger.com/profile/17444227958539559639noreply@blogger.comtag:blogger.com,1999:blog-2986124651030959736.post-61824364474019798712013-06-03T17:48:08.559-05:002013-06-03T17:48:08.559-05:00Is your statement that the investment grade of an ...Is your statement that the investment grade of an average duration of 1.7 years didn't move as being attributed to ZIRP instead of QE is bc of the large losses in the long end ?Anonymousnoreply@blogger.com