The bond market’s recent rally (higher prices, lower yields) has two causes, both of which may prove to be fleeting:
1. The Fed’s minutes clearly indicate that the majority of the FOMC members favor lower interest rates for a longer period of time than what the market had interpreted from “Yellen’s 6-month comment” at the press conference after the meeting.
2. The recent spate of economic indicators for March, while stronger than February, clearly disappointed expectations leaving the question “Is the economy slowing?” Unanswered. Weak data from China have reinforced the “slower” growth notion.
We believe that the Fed is either concentrating on the wrong part of the labor market (structural vs. cyclical issues) or has other reasons to keep rates low for longer (like financial stability concerns, especially in Europe). As far as the economy slowing, we don’t believe that the seasonal adjustment process, one that uses historical data to “normalize” seasonal issues, can adequately account for a winter that is two standard deviations away from normal. Over the next couple of months, we will know the answer to the “slower” growth question.
Robert Barone (Ph.D., economics, Georgetown University) is a principal of Universal Value Advisors, Reno, a registered investment adviser. Barone is a former director of the Federal Home Loan Bank of San Francisco and is currently a director of Allied Mineral Products, Columbus, Ohio, AAA Northern California, Nevada, Utah Auto Club, and the associated AAA Insurance Co., where he chairs the investment committee.
Contact Robert Barone or the professionals at UVA (Joshua Barone and Andrea Knapp) who are available to discuss client investment needs. Call them at 775-284-7778.
Statistics and other information have been compiled from various sources. Universal Value Advisors believes the facts and information to be accurate and credible but makes no guarantee to the complete accuracy of this information.
