Municipal Bond Forum
Waiting for Greenspan
Q
I wanted to invest my money after Greenspan spoke recently, expecting to invest at higher rates since everyone expected the Fed to raise rates. What’s going on? Why are rates not rising? The long end of the muni curve was higher yielding before Greenspan spoke. The short end of the curve is also lower yielding before Greenspan spoke. Should I continue to wait knowing that the Fed will continue to raise rates in the future? Is this rally in the market just a fluke?
A
James A. Klotz responds:
Actually, long-term bond rates are lower today than they were when the Fed began its series of short-term rate hikes in June 2004. The reasoning is the Fed, by raising short-term rates, will keep inflation in check. Inflation concerns cause long-term yields to rise.
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