Rumors

My how the bond market reacted to the RUMOR that the ECB was going to cap interest rates. It rained on the very thin bond market when the ECB announced that there was no truth to the rumor. Rate caps and direct bond buying is unlikely to occur as long as Germany is opposed. Germany will continue to say "nein" until the periphery governments agree to conditions and reforms. Do not believe stories to the contrary. Much has been made of the damage to the German economy and the potential for higher interest rates should the eurozone fragment. The truth is that, if Germany has to support the periphery, its economy will be equally damaged and, as we have seen in recent weeks, its borrowing costs would probably rise. If Germany is going to experience pain either way, it might as well eliminate the source of the pain in the process. JPM is out with a new perpetual preferred. Price talk is in the 5.50% to 5.75% area. Will someone tell us why it is better than JPMprI? Please do not say: If the new preferred is called in five years you are better off. We will take the other side of that bet all day long. We would need to "out-Japan" Japan for that to happen. www.bond-squad.com 347-927-7823 Twitter: @Bond_Squad Disclaimer: The opinions expressed in this publication are those of the author. They are not, nor should they be considered solicitations to purchase or sell securities.