With no end in sight for the Federal Reserve’s fixation on low interest rates, a likely scramble for yield has intensified worries about dangers ahead for junk-bond investors.
The Fed’s announcement on Wednesday that it will tie near-zero rates to specific unemployment and inflation rates sent a clear signal: Those looking for return in cash and fixed income won’t get it from conventional debt instruments like Treasurys and money market funds.
Instead, they’ll have to turn to assets like stocks, commodities and higher-yielding bond products that carry greater return – and greater risk. (Read More: Fed to Keep Easing, Sets Target for Rates)
“The market is thirsting for yield and the Fed is pushing people to do things like this,” said Lawrence G. McDonald, who as head of LGM Group specializes in junk-bond trading. “So big asset managers are reaching, reaching, reaching and companies know this and are issuing, issuing, issuing all this crap.”
After the Great Recession, the Great Malaise. And after the Great Malaise? Well, there is no end in sight yet.
It is four years since, during the depths of the financial crisis, the Federal Reserve embarked on a journey of unconventional monetary easing. With the US central bank announcing more bond purchases on Wednesday – the intention being to hold interest rates lower for longer – it is getting in even deeper.
For savers, including retirees, whose bonds are yielding less than they have in generations, the income famine continues. To Wall Street professionals, who have long warned the Fed is creating a bubble in bonds, the day of reckoning seems further away than ever, but more dangerous now, too. READ MORE
Quantitatitve Easing Is Not “Liberal” Economics
The Fed has just announced its fourth round of “quantitative easing”.
While the mainstream financial press pretends that quantitative easing is a “liberal” economic policy, nothing could be further from the truth.
As we’ve repeatedly explained, quantitative easing is a bailout for the super-rich, at the expense of the little guy. It increases inequality and fails to stimulate the economy. (And it destroys the savings of retirees.)
Indeed, Fed boss Ben Bernanke knew 24 years ago that quantitative easing doesn’t help.
Fed Stimulus Fuels Fears of US Currency War
America’s Economic Future Is A Disaster: Government Benefits Killing Incentives for Jobless To Find Work, The Fed Paying Banks Not to Lend, Now The Government Have To Cut Spending And Raise Taxes For Next 10 Years.