Financial Repression/Corporate Bonds

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ResNullius
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Financial Repression/Corporate Bonds

Post by ResNullius » Sun May 22, 2011 4:59 pm

Maybe I'm just dumb as a post, but I don't understand why all the recent article on financial repression focus on not buying Treasury bonds, but never mention whether corporate bonds would suffer a similar fate. Can someone explain?

matt
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Joined: Sun Mar 04, 2007 3:47 pm

Post by matt » Sun May 22, 2011 9:27 pm

Part of it is a potentially legitimate view that Federal Reserve buying of Treasury bonds is artificially reducing Treasury yields, but is not impacting corporate bonds equally. There may be some small truth to this, but given the modest spread between corporate and Treasury yields, it is no more than a small truth.

The bigger reason is that most of the people making these comments are taking a political stance and not basing their views on any fundamental investment data. "Big government is bad, corporations are good." Investors make big mistakes when they let their political views interfere with their investments, but they do it all the time anyway.

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TrustNoOne
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Post by TrustNoOne » Mon May 23, 2011 11:56 am

The article on financial repression seems flawed to me. Financial repression is not a theory but a fact, it seems. For past 2 years or see we have had zero t-bill rates but positive non-zero inflation. Whether this continues, I don't know.

The problem I have with the article is it gives exactly, the wrong advice. It says you should boycott treasury bonds, which I read to mean the longer term ones. The implication is to go shorter (or buy stocks which is a totally different ball game.) However, it seems to me that the longer the bond the less it is influenced by the zero interest rate policy, and the more it reflects market valuations. a 30 day t-bill is zero because the Fed says it zero. The 30 year t-bond is not zero because the market says so.

Consequently, I would think they are less impacted by financial repression. Same would be true for corporates, esp. the longer ones. Of course, longer bonds and corporates all have a many other risks, which influences prices as well. This is not to say, I'm advocating 30 year bonds, its just that I think the article about this issue is simply off base, and may well politically motivated.

Bongleur
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Re: Financial Repression/Corporate Bonds

Post by Bongleur » Wed May 25, 2011 2:06 am

ResNullius wrote:Maybe I'm just dumb as a post, but I don't understand why all the recent article on financial repression focus on not buying Treasury bonds, but never mention whether corporate bonds would suffer a similar fate. Can someone explain?
what article? What's financial repression ?
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