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Posted by on Oct 17, 2014 in Laif Meidell

Bullard comments lead to market spike

Bullard comments lead to market spike

By Laif Meidell, CMT, president of American Wealth Management, and portfolio manager of the AdvisorShares Meidell Tactical Advantage ETF (MATH)

 
The major stock market averages fell at the open on Thursday, but then spiked higher following the Federal Reserve Bank of St. Louis President James Bullard’s comments that the Federal Reserve might want to keep quantitative easing alive, beyond its October meeting in two weeks. Bullard is not a voting member of the monetary policy-setting Federal Open Market Committee and has been known for having views outside the consensus.

The current quantitative easing program has been a bond-buying program, designed to stimulate the economy by lowering long-term borrowing costs. Although officials agreed last month to end the program after its October meeting, the Fed has stated on several occasions that purchases “are not on a preset course” depending on the “outlook for the labor market and inflation.”

On Tuesday of this week, high-quality Treasury bond prices spiked higher with 30-year Treasury yields falling below 3 percent for the first time since May of 2013. The 30-year Treasury yield closed on Thursday at 2.93 percent while the 10-year Treasury yield closed at 2.15 percent.

With interest rates now being driven lower by concerns over global growth concerns, is there really a need to extend quantitative easing as Bullard suggests?

In the Eurozone, renewed concerns seem to be coming out of Greece that are reminiscent of the sovereign debt crisis. Just this week, interest rates on the Greek 10-year bond have gone from about 6.5 percent on Monday to as high as 8.94 percent on Thursday. Also on Thursday, the yield on the 10-year German Bund (bond) fell to a record low of 0.718 percent. Although there has been a “dash for cash” this week with investors around the globe putting money into high-quality bonds. Clearly, those countries with higher levels of debt, such as Greece, are seeing outflows not inflows as investors hunt for safety.

Once again, the top-performing bond index is the Barclays U.S. 20+ Year Treasury Bond index, gaining 2.42 percent over the past five trading days, followed by the Barclays U.S. 7-10 year Treasury Bonds index higher by 1.41 percent during the same period.

This commentary originally published in the Reno Gazette-Journal. Performance numbers used in this article were obtained through eSignal and are not guaranteed to be accurate.

The AlphaBaskets blog provides frequent market insight and commentary by AdvisorShares Investments, LLC, created by AdvisorShares and other leading active managers.  AdvisorShares Investments is an SEC-registered investment adviser and the investment adviser to the AdvisorShares actively managed ETFs. The views expressed on AlphaBaskets should not be taken as investment advice or a recommendation for any of the actively managed ETFs advised by AdvisorShares.

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