In this case, as Doug notes, gains were priced into the market following the Fed signal in August that it was preparing to engage in another round of QE. The Fed has been trying to engineer lower rates to push the dollar down further, help exporters, reflate the economy, and boost the stock market and resulting "wealth effect" on US consumer spending. But the latest round is a very modest and phased form of QE which has excited few commentators (or speculators), except those on the right persistently haunted by the spectre of hyperinflation.
On 2010-11-27, at 3:08 PM, michael perelman wrote:
> Low interest rates mean a risk of capital losses on long bonds. The
> risk on bonds increases relative to other kinds of bets.
>
> On Sat, Nov 27, 2010 at 11:24 AM, Doug Henwood <dhenwood at panix.com> wrote:
>>
>> On Nov 27, 2010, at 2:16 PM, michael perelman wrote:
>>
>>> Jane D'Arista would add that to the extent that QE2 lowers interest
>>> rates on long-term bonds (one of the intended goals of the program –
>>> one which will probably not succeed), the program will only serve to
>>> make speculation more attractive.
>>
>> How's that? Speculators generally borrow short-term. A leveraged position in long bonds would be profitable if that happens, but probably most of the movement in rates has happened already, if at all.
>>
>> Doug
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> Michael Perelman
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> California State University
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