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Bonds Are a 'Safe' Investment: A Big Lie Gets Even BiggerWhat is the Philadelphia Federal Reserve index? First we should say that the Philly Fed Index, as it is called, measures business activity for the Mid-Atlantic region. During the recent financial crisis, the index has been solidly in the minus column with a reading of -22.6 in May and a median forecast of -17.0. Minus readings indicate a contraction in business activity, while plus readings indicate that business activity is picking up.
Surprise! The most recent reading came in at -2.2. While this is still a minus reading, its a big jump from the consensus reading of the median -17.0. This means that, while business activity is still weak, it is picking up at a more rapid pace than analysts had expected.
But this kind of news is crushing to the bond market. Bonds usually move up on bad news and drop on good news. Why is this? The main reason is that investors are moving their money out of bonds and into stocks (selling bonds and buying stocks). Selling bonds causes the yield to rise (yields move in opposite direction from prices. When prices fall yields rise).
The reaction in the bond market was predictable. When the Philly Fed report came out, bonds sold off and yields rose to 3.77%. On Wednesday, the yield was 3.70%. As of 10:45 am EDT Thursday, the September 30-year bond futures contract was trading at 115.02, down 1.08 for a loss of $1,250.00 on the day.
Is business activity picking up in your area?
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