Tuesday will mark VIX December's expiration, marking yet another volatile month. The good news is that the VIX has retreated from its mid November high of 80. Although still considered to be very high, a retreating VIX has allowed some investors with a window of buying opportunity. The bad news is that it appears that this window was not open for too Long. With the current VIX level, fear still surrounds this market. Investors are concerned about the Big 3, the implications of a new Obama Administration, and more wall st. scandals. Perhaps January's VIX will lead to more clarity.
One of the questions I get most from clients is how to generate yield when the Fed is on hold with rates at zero. For a while many defensive clients were content receiving their 3% annual yield from Treasury bonds, but the Fed’s most recent meeting minutes shows that the Fed’s pace of bond buying may soon slow. While I do not think tapering is likely before year end (unless economic data accelerates significantly) the bond market is forward looking and already beginning to price tapering in. Smaller Fed purchases of Treasury bonds will mean that bond yields go up and bond prices go down. Bonds have been in a multi-year bull market, and we may now be on the cusp of a multi-year bear market. The most important indicator to watch is the 10-year yield, which cracked the 2.10% level this week for the first time in a year. If we continue to hold above 2.05% in June, the top is likely in for bonds and borrowing rates will be on the rise for everyone, including the US Treasury. So, how am ...
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