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Monthly Archives: October 2011

Bonds: Different Strategies for a Common Goal

Skip long-term treasuries and buy more stocks: That’s the sentiment (and title) behind an article by Forbes on September 27.

Forbes reported news of the Federal Reserve voting “to revive a half-century-old procedure to push down long-term interest rates and make it cheaper for businesses, municipalities and consumers to borrow funds… [by directing] $400 billion from the sale of short-term Treasury and invest it in those with maturities of six to 30 years.”

Furthermore, the article indicated that the decision was made when the yield for the S&P 500 exceeded that of the 10-year Treasury bond. At the time of the article, by the end of closing week September 30th, the 10-year T-bond was 2.23% and the S&P 500 yield was 4.35%. The significance of this (or the good news) is that the S&P 500 yield has only exceeded the bond yield 20 times since 1953 on a quarterly basis, according to Sam Stovall of Standard & Poor’s, the article added. The bad news is that this happened when the US government’s credit rating dropped for the first time since regulatory demand began in the 1930s and now investors are dumping government bonds- once the safest form of risk- like last year’s Netflix envelops. (more…)