I Was Raised a Bond Guy
I get asked all the time what I think about the market. For over thirty years my first focus when asked was always the same thing – the bond market and interest rates. Yes, the boring bond market, where governments and corporations borrow money. The bond market is not nearly as exciting and sexy as the stock market. In the bond market we never had interesting stories to follow like Facebook and the next cool thing Google might be up to. But over the course of the last five years as my focus has expanded to more markets, including the equity and private markets, I have come to realize the value of a well grounded understanding of bonds and their implication for all other markets. Last Wednesday as stocks sold off when the Fed concluded its two day FOMC meeting with the announcement that they planned on raising short term interest rates, the value of understanding the bond market and its connectivity to other markets was reinforced. In an official statement the Fed predicted that their target rate for Fed Funds would be 1% at the end of 2015 and 2.25% at the end of 2016. In the near term no change to rates, but the Fed will continue to taper their monthly bond purchase program cutting it back to $55 billion a month. The Fed’s action first and foremost affects not the stock market but the bond markets since their main tools in controlling the economy are interest rates and interest rate levels impact creditors.