TUESDAY JANUARY 19, 2010

Bond Buyers beware!

Unlike those in the media that fret over the risk in the stock market, I continue to think that, at least in the near-term, one of the riskiest asset classes is the U.S. Treasury market.  Obviously, with the Federal Reserves' Fed Funds rate at near 0%, there is only one direction rates can go and that is up.  Higher rates...lower prices.  With rates relatively low, prices don't have to drop much to overwhelm the interest income, putting pressure on the ability to generate a positive total return.

But low rates are not the only problem.  In 2010, the Treasury is set to issue a massive supply of new bonds to fund our country's spending binge.  Here is a tidbit to put this supply in perspective.  The increase in supply this year will exceed the total issuance of Treasury securities in 2009!  That's a lot of bonds for the market to digest.  This suggests that there will be continuous pressure on rates, particularly on the long end of the yield curve.  Bond buyers beware!

POSTED AT 1899-12-30 08:53:00.0

KEN ENTENMANN, CFA
SENIOR VICE PRESIDENT AND
THE DIRECTOR OF INVESTMENT MANAGEMENT SERVICES

Ken is a Senior Vice President and the Director of the Trust and Investment Services at Alliance Bank, N.A. He has 23 years of investment experience and oversees the management of assets totaling $1 billion. He holds a B.S. in Applied Economics and Business Management from Cornell University and an M.B.A. from the William E. Simon Graduate School of Business Administration at the University of Rochester. He has also earned his Chartered Financial Analyst designation. He is a member of the Executive Committee of the Trust Division of the New York Banker's Association. He is also a director of the Central New York Community Foundation.

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