It has now become apparent that even hurricanes and high retail gas prices haven’t really slowed down the U.S. economy. This has moved the credit markets off its spring and early summer “high oil prices are deflationary” consensus. Fixed income investors now wonder about the strength of the economy and can’t discount tightening monetary policy. As the chart below shows, short term rates have been on the rise since mid 2004 but longer term rates have actually fallen over much of the period. The bond market now does not like what it sees and interest rates have started to rise for longer term bonds.
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Canso 2005 Q3 Corporate Bond Newsletter
