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Friday, December 27, 2013

The Bond Volatility Haircut

http://viableopposition.blogspot.ca/2013/12/the-bond-volatility-haircut.html

The Federal Reserve's long experiment with its zero interest rate policy is looking like it is going to wind down over the coming months.  As the Fed withdraws its support from the bond markets, the price of Treasuries is likely to fall and, since interest rates move in the opposite direction to bond prices, the rates on government bonds will rise.  We're already seeing some evidence of that in the fixed income market as shown here:

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