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Market Update

Fork in the Road for the Bond Market

There is strong disagreement about the direction of U.S. interest rates.

U.S. Bond Market Rallies�
The broad U.S. fixed income market's rally continued through August, prompting some to warn of a "bond-market bubble." Proponents of the bond-market bubble theory point to the record low yields, the country's gigantic deficit and debt burden, and the volume of bond buying by retail investors (whose interest in an asset class can often signal its peak) as proof of their argument.

Conversely, sound bites from Jackson Hole and less-than-reassuring economic statistics have others suggesting the U.S. is falling into a prolonged economic slump, with the implication that yields can go lower. Subscribers to this theory discount any strength in economic data as remains of last year's stimulus spending and see Federal Reserve chairman Bernanke's suggestion that the U.S. central bank "will do all that it can" to ensure a continuation of the economic recovery as well-intentioned but lacking ammunition as rates approach zero.