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Anchors Aweigh?

Saturday, May 18, 2013 - 3:52 PM
In the current issue of Charles Schwab's Bond Insights: 
  • how interest rates may be affected when the Fed begins reducing its bond purchases,
  • how low interest rates and strong demand have led to a high pace of new issuance in the corporate bond market
  • an update on Build America Bonds (BABs) and extraordinary redemptions due to sequestration and
  • revisit premium bonds and discuss how they can play a key role in a fixed income investor's portfolio.
After more than four years of anchoring short-term interest rates at zero and holding down long-term yields with its quantitative easing (QE) program, the Federal Reserve (Fed) is signaling that it may soon begin to reduce its pace of bond buying. In our view, this is the beginning of a long process of returning the interest rate markets back to "normal"—where the markets determine yields, rather than yields being heavily influenced by the Fed. Indeed, what will happen to yields when the Fed begins to lift the anchor?

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pearlbrownpearlbrown1,491 posts since
Nov 2, 2010
Rep Points: 6,490
1. Saturday, May 18, 2013 - 4:53 PM
"Consider strategies that can help investors deal with the risk of rising rates, including reducing exposure to long-term bonds, limiting exposure to riskier sectors of the market such as high yield bonds that have rallied as investors searched for yield, and maintaining some cash to reinvest when interest rates rise."
ShorebreakShorebreak2,700 posts since
Apr 6, 2010
Rep Points: 14,636