Japan is cutting interests ratesto virtually zero. This means investments in Japanese debt are as good as putting your money under your mattress; the money will likely still be there but when you get your yen back, don't expect any rate of return. What could be worse, purchasing power is likely to be impacted even with minimal inflation. Japanese drama continues.
So what about the United States?
Economic growth in the U.S. is very sluggish and no matter what the experts say - that the recession is over - it still feels a lot like a recession. Purchasing power for most Americans has declined over the last several years with collapsing real estate values and a massive correction in the equity market. Coupled with 10% unemployment, this struggling recovery looks to be a stumbling one at best.
Because of this muted recovery, Rates are likely to be heading down (or at lease staying flat) over the next 12 months as I believe economic activity will simply not be strong enough to merit tightening of the money supply. For that reason, short to intermediate term fixed income positions have merit as long as one is tactical and watches economic growth patterns carefully. As for long-term fixed income, we believe you need to be very careful investing in longer maturity fixed income assets. If there is a bubble in the fixed income market we believe it's in longer-term maturities (and Treasuries).