Say What You Want, But Investors Have Made Bank Betting On Bernanke

Investors betting U.S. government debt due in 10 years or more have done well.  In fact, they haven’t done done this well since 1995, Bloomberg reports. This despite concerns from lawmakers and economists alike that Bernanke’s easing policies would lead to the extreme devaluation of the dollar and uncontrollable inflation.

Last week’s announcement of Operation Twist, The Federal Reserve’s newest attempt to stimulate the economy, only plunged yields even lower. They closed at 1.83% last week. Economists and strategists surveyed by Bloomberg back in January thought yields would be around 2.35% by this time.

Before the announcement, Republican lawmakers sent Bernanke a letter urging him not to “harm” the U.S. economy by intervening with more monetary stimulus.

Instead of making investors wary of U.S. treasuries, though, it seems that Bernanke’s actions are actually giving them the best assurance they have in the current volatile market.

Via Bloomberg:

“The flight-to-safety bid is still fierce,” said Wan- Chong Kung, a bond fund manager in Minneapolis at Nuveen Asset Management, which oversees more than $100 billion, in a Sept. 19 telephone interview. “The fundamentals of very modest growth, modest inflation and a Fed that wants to commit to low rates for a long time continue to be supportive.”

Here are two more signs Bernanke’s critics aren’t seeing their theories played out in the market:

  • Since the Fed announced QE2, he dollar has risen 2.6 per cent to 78.501 against the currencies of six major U.S. trading partners including the euro and yen.
  • According to government data, consumer prices excluding food and energy rose 2 per cent in the 12 months ended Aug. 30, compared with 0.6 per cent in October 2010, the smallest increase since at least 1958.
  • Treasuries of all maturities have returned 9.3% this year.

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