Free Republic

<p>The last politician who took advice from the bond market was Bill Clinton. When he pushed for a tax hike back in 1993 to cut the budget deficit, it was under the assumption that bond investors would respond by bringing down interest rates. (The theory here is that deficits are inflationary. Inflation is bad for bonds.) Yet long-term interest rates surged from 6.45 percent when Clinton signed his tax-hike bill on Aug. 10, 1993, to 8.16 percent on Nov. 7, 1994, the day before the midterm congressional election where Republicans won back the House and Senate.</p>

WASHINGTON - The 30-year Treasury bond made a long-awaited return on Thursday, delighting bond investors and the cash-strapped federal government. The Treasury Department sold $14 billion of the bonds with a yield of 4.53 percent. Strong demand helped to keep the yield at its lowest level ever. The yield was 5.52 percent the last time the 30-year bond was auctioned, on Aug. 15, 2001. Bond sales stopped while the government ran a string of budget surpluses. Deficits returned and set records, so the government reintroduced the bonds, hoping to lock in interest payments at low rates for a longer period....

Who would have thought the bond market could have done "better than that" - better, that is, than what it typically does during periods of rising short-term rates? Not yours truly, nor Alan Greenspan who calls it a "conundrum" - a word with less impact than "irrational exuberance" but fraught with significance nonetheless if only because it acknowledges mystification by a man who is supposed to have a lot of the answers. The fact is that since the Fed has raised the overnight rate from 1% to 2½ % (with market expectations for more), the 5-year Treasury (a proxy for...

September 06, 2003 Market Timers or Market Cheaters? by John Mauldin Given the wide disparity of views about the economy, it is little wonder that the reaction to Greenspans latest speech has been all over the board. That is compounded by the fact that bond price expectations are totally disconnected from Fed expectations. Are the bond market critics just a bunch of whiners (give me back my risk free trade!) or is there substance to their major beef? Who's really in charge here? Can the Fed trump the market? Predictably, I answer the latter question with both yes and no....