Financial Accounting Blog

Monday, April 05, 2004

The Economist reports that the outlook brightens for government bonds and darkens for riskier assets.
Americas Federal Reserve left short-term interest rates at a 46-year low of 1% in March with heavy hints that they would stay there for awhile. Extremely low rates poise a problem for investors and the Fed itself by unleashing a flood of money into riskier assets. And the riskier the assets, the loftier the price and with thinner rewards. Thus shares and corporate bonds are more expensive and government bonds are not as expensive as many had thought. The Treasury market has been given a boost by foreign banks which have been buying masses of government debt. Stocks and bonds issued by companiies most exposed to the business cycle and terroism have been hard hit. Ford, the largest issuer of corporate debt fared poorly recently. This could possibly lead to falling growth and an aversion to risk.