The morning after

For the seventh straight time the Feds didn’t change rates. However, they did say inflation was still a concern despite a slowing economy. This lowered Bond prices a bit over the course of the day yesterday.

The bigger news in my opinion, for long term rates, is what happened in Britain. Over “across the pond” the Bank of England raised their rates to 5.5% – now 0.25% higher than our own rates. Inflation in Britain has been hovering around 3% lately and their target is also 2%.

From a bond investor perspective (like the Chinese, Japanese and Korean governments) all of a sudden a major financial market is offering higher returns. I am sure investors will divert some of their money towards London. This means demand for American bonds will suffer and consequently result in higher interest rates down the line.

Nothing is as neat as on paper, and there are other concerns, such as Prime Minister Blair announcing his resignation this morning and the US trade deficit widening more than forecast.

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