Here’s a great chart from SoberLook showing how fixed income assets — which for many investors are viewed as the “safe” part of their portfolio, have just gotten murdered this month.
SoberLookThe chart was brought to our attention by @fullcarry on Twitter, who made this observation yesterday in regards to the fixed income selloff in the wake of the Fed’s Wednesday announcement.
This reaction actually justifies what the Fed did.
— Ed Bradford (@Fullcarry) June 21, 2013
In other words, the best explanation for the Fed taking a more hawkish tone is that the Fed was growing worried about investors going lemming-like into fixed income assets, confident that rates would stay low forever, and that when the time did come in, say, 2015, to raise rates, it would be Armageddon.
This week the Fed made only vague hints about tightening (really not much new) at yet these assets got utterly smoked, which is a strong indication that the love for fixed income assets was getting out of control.
The Fed reminded everyone that “safe” is not necessarily so fare. If the economy stays humming, and the Fed can inject some caution into markets, that will be a big win. We’ll see how it goes.
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