Time to Sell Bonds

The disaster in the bond market gained a new wreck this week with the release of the PPI.

An increase of 1.4% in one month is a warning to fixed-income investors that the inflation is back, and will build as the economy expands and banks resume lending.

Bonds are at the lows of a recent trading range and are poised to trade lower.

The following events will trigger a sell-off in bonds.

1. Money supply increases - M1, M2, MZM
2. Price increases - PPI, CPI, CRB
3. Quarterly refundings - 10 year notes and 30 year bonds

If your institution has the ability to lengthen liability maturities, do it now.

If your institution is selling bonds during one of these events, make sure you're hedged.

* * * * *  J B K  * * * * *

     San Francisco