No. of Recommendations: 4
<Also, since I just returned from Australia this weekend (which you Paul know), their CD rates in the 5-6% range look pretty good in this inflation environment, but they're also tempered by home mortgage rates in about the same range.>

I have a Term Account in an Australian bank. I'm trying to decide whether to re-invest in a new Term Account or convert the AUD to USD and bring it home. With the Australian government cutting interest rates, the USD/AUD exchange rate is deteriorating so I could get fewer USDs back if I wait and the rate drops more. The problem of global bond investing is exchange rate risk.

<I think it will be MORE interesting to see how long or if US corporate 10 year rates will remain close to treasuries, and how this all unwinds.>

The Corporate Master Option-Adjusted Spread is higher than it was during the recovery cycle of the late 1990s and mid-2000s. The Federal Reserve has similar charts for each of the bond ratings (including junk bonds) in addition to the "Corporate Master" of investment grade (those rated BBB or better).

The National Financial Conditions Index (NFCI), which measures risk, liquidity and leverage in money markets and debt and equity markets as well as in the traditional and “shadow” banking systems, shows that financial conditions are very loose now.

Should financial conditions tighten (e.g. if the Fed and other central banks were to begin to tighten the money supply due to increasing inflation or if the Euro debt crisis raised its head again or any other liquidity crisis) bond prices would fall. The long-term charts show the response of the market to such events. Watching the spreads and the NFCI is more helpful than nominal bond yields (the Fed has those, also) because the former are measures of bond market risk premiums.

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