Watch out for bond mines

by Andrew Pyle, Wealth Advisor ScotiaMcLeod,
Last week, the Federal Reserve did something it had done 13 times prior. It kept its official fed funds target rate unchanged at 0 to 0.25 per cent.

I know – a big snore. But wait, the Fed also repeated the less common promise to unveil the sequel to quantitative easing, the so-called QE2.

Yes, that stimulative tease was conditional on things in the economy not getting any better and, more importantly, on inflation staying below what the Fed considers satisfactory.

However, even though there was no date set for when the Fed might engage in bond buying, nor how it would do so, the fixed income market ate it up all the same.

Look Out Below

Following the announcement, the U.S. two-year Treasury yield dropped to a record low 0.41 per cent and longer-dated bond yields fell sharply as well. Throw in a sluggish equity market after the FOMC and we saw the 10-year U.S. yield dip back below 2.6 per cent and the 30-year fell under the 3.75 per cent mark - both not too far from the lows seen back in late-August. (more)