Word: bonding
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Americans struggling to find work, get a decent pay raise or buy a home must marvel at the peculiar worries of Bill Gross. A legendary investor, Gross runs the $76 billion Pimco Total Return bond fund. In recent weeks he has sold $6 billion in Treasury bonds, activity that has contributed to a sharp rise in mortgage interest rates. Gross, though, is more concerned about bad things that might happen in the future, not what's happening now. "Two or three years down the road," he says, "inflation might be a real pressure cooker...
...prospect of a runaway economy complete with nasty inflation is unfathomable to a battered labor force more focused on getting or keeping jobs in the current climate. But Gross and other bond investors get paid to look far ahead, take their best guesses and place their bets accordingly. In the process, they exert near total control over the rate you pay when borrowing to buy a house, car or toaster...
That's because long-term interest rates are set in the bond market, not by the Federal Reserve, which dictates short-term rates. Bond traders sell when they anticipate a pickup in inflation, which usually accompanies economic growth and erodes the value of their fixed interest payments. In the past two months, the selling has been heavy, and as a result the average 30-year fixed-rate mortgage has jumped from 5.25% to 6.37%. That move adds $143 to the monthly principal-and-interest payment on a $200,000 mortgage--all because Gross and his kind have had a change...
Greenspan is clearly worried that the bond mavens' expectations for a solid recovery is premature. Last Tuesday the Fed met and not only held its benchmark Federal Funds short-term rate at 1% (a 45-year low) but also took the unprecedented step of saying it would leave the rate there "for a considerable period." The Fed hates to be boxed in. It desperately wanted bond investors to follow the lead. They didn't. A sell-off in Treasury bonds that began in June persisted, pushing bond prices down and yields up. The yield on the closely watched 10-year...
DIED. WALTER ZAPP, 97, inventor of the Minox mini-camera, a device tiny enough to be hidden in a closed hand; in Binningen, Switzerland. Though the camera he created in 1936 became a popular gadget in James Bond movies and other spy films, Zapp's invention was inspired not by anything so intriguing as espionage but by having once worked as an art photographer's apprentice, which required him to lug around heavy wooden cameras...