JANUARY'S CHILL

January was another rough month for most asset classes. It was tempting to think there were legs to December's rebound, which ended the non-stop crushing losses of September-November. Eventually, the genuine rebound will come. In the meantime, there are false starts, as January reminds.

The good news is that last month wasn't a complete sea of red ink. That's an improvement over September's and October's across the board losses in the major asset classes. Nonetheless, the gains keeping us out of total red last month rested thinly on high-yield, emerging-market and inflation-indexed bonds.

Q4 GDP TUMBLES, AS EXPECTED

Today's report on last year's fourth-quarter GDP wasn't good. In fact, it was quite ugly. But it could have been a lot worse.

Even so, the 3.8% contraction in the economy in 2008's final three months was the steepest decline since 1982. The previous recession in 2001 never came close to what's unfolding now. The 1990-91 slump was deeper, but even that will look mild by the time the current downturn has run its course.

In other words, we're now in the thick of the worst recession since the early 1980s. That said, the crowd was expecting a far deeper loss. The consensus forecast for Q4 GDP was -5.5%, according to Briefing.com. By that standard, the reported 3.8% retreat was a surprise.

DREAMING OF BETTER DAYS

Looking for a sign of sunnier days when a storm is raging is human nature. Homo economicus is an optimistic creature at heart, although that optimism is now being put to the test.

REINVENTING FOMC COMMENTARY

The press release that follows the Fed's FOMC meeting today may offer clues about how the central bank will proceed now that it's out of conventional monetary policy ammunition. Then again, maybe not. We're all trapped in gray zone of trial and error about what to do next and the Federal Reserve is also now faced with grasping at straws.

Typically, an afternoon FOMC press release attracts interest for an update on where short-term interest rates are headed. Today, and probably for some time to come, everyone already knows the answer. The Fed controls short rates, starting with the all-powerful Fed funds, but with the effective Fed funds at roughly 0.16%, the mystery about what comes next is, like the price of money, virtually nil.

TALKING ABOUT GINNIE MAE BONDS ON THE INSIDE VIEW

Safety and a higher yield? Typically you can have one or the other. But sometimes you get both. That's the case with bonds issued by the Government National Mortgage Association, or Ginnie Mae, as it's commonly known.

In today's episode of The Inside View, we take a closer look at Ginnie Maes in a conversation with David Ballantine, lead manager of the Payden GNMA Fund (PYGNX). As he explains, Ginnies are mortgage-backed bonds fully secured by the U.S. government. That means Ginnies are effectively of the same credit quality as U.S. Treasuries. Yet Ginnies also tend to offer a yield premium over Treasuries. Currently, Ginnie yields are generally available at 140 basis points over Treasury bonds, Ballantine says.

According to Morningstar, Payden GNMA ranks high for trailing performance in the past five years among intermediate government portfolios. The portfolio's 7.7% total return in 2008 was not only one of the fund's better years since it was launched in 1999; last year's gains also looks attractive generally, given the steep losses almost everywhere else in the capital markets. That's no guarantee that the fund will continue to excel, of course. Indeed, the strong gains in Treasuries and GNMAs in 2008 offered a bullish tailwind generally last year, and one that's not likely to be repeated.

Keep in mind, too, that Ginnies bear prepayment risk as mortgage-backed bonds. That risk tends to rise when interest rates fall and homeowners are inclined to pay off old mortgages by refinancing at lower rates. Then again, interest rates have already fallen to levels unseen in decades. That raises questions about the future for bonds generally, although one might wonder if the outlook is different for Ginnies.

With investors looking for a safe haven and a decent yield, it's a perfect time to take a closer look at these bonds as an asset class and consider the possibilities, and risks. With that in mind, listen in as Dave Ballantine discusses an obscure but intriguing corner of the U.S. government bond market…