Stock investors are giddy about the impending v-shaped recovery (which, at this point, seems required to drive the stock market higher).
Bond investors, meanwhile, are looking forward and seeing nothing but crap. Despite trillions of proto-inflationary reserves being pumped into the global economic system, bonds are rallying and rates are dropping.
Because bond investors aren’t buying the v-shaped recovery thing.
Bloomberg: While the International Monetary Fund said last week the economic recovery will be faster than it forecast in July, investors pushed yields on government debt to the lowest level since April, according to the Merrill Lynch & Co. Global Sovereign Broad Market Plus Index. The gauge, which tracks $15.4 trillion of bonds worldwide, gained 0.73 per cent this month, the most since 1.02 per cent in March.
Debt investors can’t see a recovery strong enough to spur central bank interest rates anytime soon, especially with the Obama administration forecasting that unemployment in the U.S. – – the world’s largest economy — will rise above 10 per cent in the first quarter. After stripping out the effects of the U.S. government’s “cash for clunkers” program to buy new cars, consumer spending was unchanged in July, according to Commerce Department data released on Aug. 28.
“The bond market does not believe we will see rapid robust rates of growth,” said Jeffrey Caughron, an associate partner in Oklahoma City at The Baker Group Ltd., which advises community banks investing $20 billion. “The deleveraging of the consumer will act as a drag on growth, which will keep inflation to a minimum and interest rates relatively low.”
Bond yields are lower now than when Federal Reserve Chairman Ben S. Bernanke said in an Aug. 21 speech at the Kansas City Fed’s annual symposium in Jackson Hole, Wyoming, that “prospects for a return to growth in the near term appear good.” European Central Bank President Jean-Claude Trichet said that while the economy is no longer in “freefall,” it faces “a very bumpy road ahead.”
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