By James Peters:
We are all painfully aware of the current low interest rate environment. We are seeing drastic intervention by The Federal Reserve in order to stimulate the economy. This intervention is causing wide divergence amongst classes of fixed income securities. The Fed may control short term interest rates, but it is investors who determine the demand for individual assets. Although Bernanke has announced that the Fed is on hold until 2014, anemic short term rates do not eliminate a potential change in investor preference.
Most investors will debate the state of the United States’ economy and expectations about world stock prices. However, most investors will agree that corporate balance sheets, as a whole, are in pretty good shape. While stock prices reflect expectations of future earnings, bond prices represent a claim on company assets and are directly related to the company’s financial condition.
In my previous article, Levered Municipal Closed-End Funds: