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Clinton Bond

Clinton Bond

What Is Clinton Bond?

A Clinton bond is a shoptalk term for a debt investment that is said to have no principal, no interest and no maturity value. It is a derogatory reference to President Bill Clinton's interest-rate policies that had bondholders lose billions of dollars right on time during his administration.

Understanding Clinton Bond

Inflation fears hurt bonds - transforming them into Clinton bonds - right off the bat in the President's initial term in office, making yields increase briefly. These feelings of dread were unwarranted, in any case, with Clinton deciding to balance the budget as opposed to expanding the federal deficit, allowing bond prices to recuperate. To be sure, inflation - one of the greatest risks for bonds - stayed taken care of for the majority of Clinton's two terms in office, rising close to 4.0% in 1999 and 2000 as asset prices climbed.

Negative perceptions of former President Clinton's ability to deal with the economy shaped the foundation for this type of bond. Clinton bonds are otherwise called "Quayle bonds", named after former Vice-President Dan Quayle. This rarely seen shoptalk term is all the more frequently used to come to a meaningful conclusion, than to really address a market bond.

10-year Treasury rates remained at 6.2% when Clinton completed his most memorable month in office in January 1993. Yields initially declined, falling however low as to 5.3% as the new Democratic administration seemed to be framing its economic policy. In any case, when Clinton carried out his fiscal policies of tax increases and diminished entitlement spending late in 1993, rates started to increase, finishing out at 8.0% in November 1994. As interest rates and bond prices move in inverse bearings, bond prices fell. As a matter of fact, as estimated by the Lehman Brothers Aggregate Index, bonds declined 2.9% in 1994, one of just three calendar year losses for fixed income starting around 1976.

Reasoning and Misconceptions of Clinton Bonds

Outright losses for bonds over mid to long-term periods are rare and caused dismay for experts in the bond community familiar with a more amiable trading environment. For the previous 12 years prior to Clinton executing his deficit reduction plan, the higher spending and interest rate reductions under the deficit-accommodating Reagan and Bush administrations had upheld a bull market for bonds. Bond market returns were more controlled under Clinton yet that doesn't recount the whole story.

The term Clinton bond might have filled its need at that point, however a glance back at the history of the Clinton administration shows that the President really pacified the bond market more than impelling it. Several Clinton life stories uncover that the President got control over his plans for more expansionary fiscal policy to keep up with relative peace with Federal Reserve Chair Alan Greenspan and the bond market.

Features

  • Clinton bond is a derogatory reference to President Bill Clinton's interest-rate policies that saw bondholders lose billions of dollars right on time during his administration.
  • History shows that the policies of the Clinton administration really appeased the bond market instead of impelling it as the term Clinton bond implied.
  • Clinton bond is a shoptalk term for a debt investment that is said to have no principal, no interest and no maturity value.