Part of what's been going on is that the spread between the ZPCMs and the 30 year Treasuries is widening. That is, when the 30 year treasury goes up, the mortgage backed securities go up even further. The spread is now closing on 2%, as opposed to 1.3 to 1.5% a couple of years ago.
This means that for all practical purposes the interest rate stimulus to the US economy by the Asian crisis is now over. Compared to ZPCMs interest rates of 6.6% less than a year ago we've come a long way, much further than the rate controlled by the Fed. Sometime in the next six months or a year it would be hard to believe that these numbers will not translate into higher unemployment.
It should be noted that, adjusted for inflation, these rates of return to bondholders are quite high by historical standards.
This also means that if you have money in bond funds, as I do, because you think stocks are too high, then you're getting clobbered.
Don't-invest-like-I-do Nowell.
-- Gregory P. Nowell Associate Professor Department of Political Science, Milne 100 State University of New York 135 Western Ave. Albany, New York 12222
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