Markets do not predict the future, they only represent the current state of mind about the future.
The fact that U.S. bond rates are so low does not mean that "something else is at work and the situation is not as bad as it seems." It just means that right now, folks can't think of a better place to put their money than in U.S. bonds. That mindset could change quickly if market conditions change. It was not that long ago that mortgage-backed securities were highly rated and well-funded.
Note: I'm not predicting doom for the U.S. here--just making the point that financial instruments really need to be evaluated by their business fundamentals, not how popular they are with other investors.
Furthermore, while the U.S. bond market is resistance to manipulation due to its size, smaller bond markets are not so protected. Here's one example:
> Markets do not predict the future, they only represent the current state of mind about the future.
I never said markets predict the future.
I said they are a good forward looking indicator. Major difference ;)
> The fact that U.S. bond rates are so low does not mean that "something else is at work and the situation is not as bad as it seems." It just means that right now, folks can't think of a better place to put their money than in U.S. bonds.
Well....implicit in my example was that what people tend to do is to complain about America's debt-to-GDP and then suggest some other asset class that investors should be putting their money in - like gold or w/e. Given the large gold sell off a few days ago, I am sure many of those guys are pissed.
Either way, my point was simply that as a general rule, the sovereign bond markets are usually good, forward looking indicators about the health of the economy of a country (relative to others). That's all I was saying - which is contrary to what politicians tell the people. But because they don't know any better, they accept what they hear as gospel because it fits a narrative in their head - bankers are stealing the wealth of the world.
I agree with you on the relative long-term safety of U.S. debt instruments, especially compared to a volatile commodity like gold.
I still disagree that bond prices are good forward looking indicators about the health of a national economy. From January to September 2009, yields on Greek bonds actually fell almost a point--by your criteria, seeming to indicate strengthening future prospects for the Greek economy. Instead we all know what happened next.
> I still disagree that bond prices are good forward looking indicators about the health of a national economy. From January to September 2009, yields on Greek bonds actually fell almost a point--by your criteria, seeming to indicate strengthening future prospects for the Greek economy. Instead we all know what happened next.
I would definitely not say that low eurobond yields on Greek debt is related to strengthening prospects in Greece. But rather an expected likelihood that Germany and the ECB would bailout Greece at terms favorable to bondholders.
The fact that U.S. bond rates are so low does not mean that "something else is at work and the situation is not as bad as it seems." It just means that right now, folks can't think of a better place to put their money than in U.S. bonds. That mindset could change quickly if market conditions change. It was not that long ago that mortgage-backed securities were highly rated and well-funded.
Note: I'm not predicting doom for the U.S. here--just making the point that financial instruments really need to be evaluated by their business fundamentals, not how popular they are with other investors.
Furthermore, while the U.S. bond market is resistance to manipulation due to its size, smaller bond markets are not so protected. Here's one example:
http://www.justice.gov/opa/pr/2011/July/11-at-890.html