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The USA Federal Reserve has made 17 consecutive .25% interests with the last resting level being 5.25%. There is possibly one more to go – who knows in this fickle world.
Regardless of whether there is one to go, the pundits are now looking further ahead and betting there will be a rate reduction in 2007. Can you believe it? That is economic cycles for you.
Take a look at the daily chart for US T Bonds below:
click chart for more detailThe contrarians have been pushing bonds higher since early July and Fibonacci projections indicate (as shown) there is still more room for further rises. You may recall that bond prices and interest rates have an inverse relationship. Climbing bond prices is tantamount to falling interest rates.
Whether bonds can sustain an upward trend is yet to be seen and it is possible that there may be some weakening along the way. But we do know that it is more likely they will rise rather than fall over the next two years.
Bonds are not an easy road for the average investor – and especially which economic bloc is likely to provide the best upside. This is a case where using a solid bond fund manager with a sound historical track record can be a useful diversification.
Enjoy the ride
Tom Scollon
Chief Analyst
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