Saturday, August 28, 2010

Bernanke Bursts Bond Bubble

What can't be sustained, won't be sustained.  The slightest disturbance can upset a fragile state of nature.  Helicopter Ben did not meet expectations when he made future quantitative easing contingent on further deterioration in things like GDP.  This was the result:

Investors pulled money out of Treasurys Friday after expectations faded that the Federal Reserve will need to buy bonds to stimulate the economy.

The yield on the 10-year Treasury note jumped to 2.65 percent in afternoon trading, up from 2.50 percent late Thursday. The price for the note maturing in August 2020 dropped to $99.781 from $101.25. Bond yields rise when their prices fall.

See what happens when you let ZIRP blow a bond bubble?  You get held responsible for bursting it.  Ben can expect some trash talking from PimpCO and other fixed-income enthusiasts if he doesn't roll out the QE bond buying real soon.  Oh yeah, Fedsters, thanks for screwing up my equity valuation calculations by keeping the yield on the 10-year unusually low.  I may as just well resort to using a blanket 4% risk free rate; the 10-year is headed there anyway.