In this hypothetical scenario 20% of the portfolio is invested in domestic large-cap growth, 10% in domestic large-cap value, 20% in domestic small-cap value, 10% in international equities, 25% in five-year U.S. Treasury notes and 15% in domestic long-term corporate bonds.
Many Fed watcher are expecting the committee to announce the purchase of long-term Treasury notes in order to keep interest rates down and stoke economic growth.
For example, from January 1, 1926-July 31, 2012, long-term government bonds returned 5.77% annualized compared to 5.36% for five-year US Treasury notes but the long-term bonds had nearly double the volatility (Source: Ibbotson and Sinquefield).
The railway ministry, which is China's largest corporate-bond issuer, used all of last year's quota for long-dated bonds and also raised an additional 50 billion yuan via short-term bills and medium-term notes.
He notes that this is a long-term call, and that the stock could be volatile near-term.
Shope notes that the Street worries about trade offs between revenue growth and long-term gross margin strategy .
The prevailing annualised rate is now 1.75% half what the American government pays on five-year notes and one-third what top-rated companies pay on long-term bonds.
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He notes that current growth rates are significantly below the long-term average of 3.1 percent and suggests that it is not unreasonable to expect above-average growth during a recovery.
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And, during the Kennedy Administration, the Fed sold T-bills and purchased an equal amount of longer dated T-Notes in order to reduce long-term rates.
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As Eichler notes, several things are driving this, including a long-term shift in resources to antiterrorism cases, and more recently the use of deferred prosecution agreements, a policy put in place during the Bush administration and unchanged by Obama, which puts an emphasis on self-policing by corporations in the hopes of heading off long, costly court cases.
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