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Today's Fed Decision
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Économiste Monétaire wrote: »We're not back to the November spike of ~250 from that spread, but the Fed is trying hard to keep the 10Y below 3%.
It seems like the Fed is the only buyer of US bonds. If this keeps up its going to throw a monkey wrench into the mortgage market
A belief in gender identity involves a level of faith as there is nothing tangible to prove its existence which, as something divorced from the physical body, is similar to the idea of a soul. - Colette Colfer
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I don't know how they could justify micro-level credit allocation of that order. Sure, I guess it's only a hop, skip and a jump from their previous purchases of GSE discount notes..:pac: TALF is, in part, an attempt to help small business borrowings, but distinct as a lending programme rather than a purchase programme. But, hey, there's no more credit risk in holding Treasuries than McDonalds' debt, judging by CDS spreads a few months agosilverharp wrote: »It will be a difficult environment , at the moment corporate bonds are doing very well and the general markets, by Sep I'd expect more of the credit nasties, so if money flows back into gov. bonds it would be at the expense of the general economy. Maybe they' will start buying corporate debt :eek:
I just read this, on the subject of crowding out by Krugman, and thought you might get a kick out of the logic. Consumers are saving too much to achieve full employment, ergo government borrowing is justified and it won't crowd out the private sector at implied interest rates...
http://krugman.blogs.nytimes.com/2009/05/02/liquidity-preference-loanable-funds-and-niall-ferguson-wonkish/0 -
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Économiste Monétaire wrote: »The 10Y note jumped today :pac:. Are you watching the stress test results, Silverharp? $75bn needed for 10 banks.
not allowed watch Bloomberg at the moment, yep thats a big move in a day. Listening to Benny the other night expecting the US economy to turn up later in the year. lol
A belief in gender identity involves a level of faith as there is nothing tangible to prove its existence which, as something divorced from the physical body, is similar to the idea of a soul. - Colette Colfer
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Well, no one failed in the sense that all of the 19 BHCs had the 4% minimum tier 1 capital ratio under the adverse scenario for '09 and 2010. The problem is that The Fed/Treasury/FDIC want a figure of at least 6% tier 1 capital ratio, with 4% tier 1 common capital ratio. I'm not entirely sure where that's going to leave Citi and BoA
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Bloomberg is good, wholesome family viewing...0 -
Économiste Monétaire wrote: »Well, no one failed in the sense that all of the 19 BHCs had the 4% minimum tier 1 capital ratio under the adverse scenario for '09 and 2010. The problem is that The Fed/Treasury/FDIC want a figure of at least 6% tier 1 capital ratio, with 4% tier 1 common capital ratio. I'm not entirely sure where that's going to leave Citi and BoA.
Bloomberg is good, wholesome family viewing...
I think that, after reading a karl whelan article I remember that Irish banks are supposed to have 8% tier one capital. What makes the American banks less risky ie need a lower rate of tier one capital?0 -
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poor Ben is having problems managing the bond market
good to see Mankiw is scraching his head
http://gregmankiw.blogspot.com/2009/05/yield-curve-is-steep.html
This graph shows the difference between the 10-year and 2-year yields on Treasuries. In general, a steep yield curve--that is, a high value of this variable--is a positive indicator of future economic growth. In many ways, however, this is an unusual downturn, so it is not entirely clear to what extent historical relationships are a useful guide going forward.A belief in gender identity involves a level of faith as there is nothing tangible to prove its existence which, as something divorced from the physical body, is similar to the idea of a soul. - Colette Colfer
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Économiste Monétaire wrote: »First it looked as though they would defend the 10 year at 3%, then 3.3% and now people are questioning if it goes to 4%. Someone from the Fed is saying that their goal was never to set rates with the purchase of Agency-backed MBS and Treasuries... Wasn't this one of Ben B's 'green shoots'?
here is what they said in March.
http://www.federalreserve.gov/newsevents/press/monetary/20090318a.htm
To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.
As its Friday
A belief in gender identity involves a level of faith as there is nothing tangible to prove its existence which, as something divorced from the physical body, is similar to the idea of a soul. - Colette Colfer
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The commodities rise and the drop in the dollar index over the week, gold was back in the high 960-80s, silver up sharply too, seemed to emanate from a fear over inflation. But, I get the view that consumer's won't borrow all the excess reserves to fuel (monetary) inflation, personal income and outlays release on Monday will probably show in favour of your secular deleveraging. Both arguments are appealing. The oil rise could just be an overreaction to the EIA petroleum status numbers.silverharp wrote: »good article , It will be interesting to see if Krugman amends his views going forward. Fergusons 70's v 30's argument was interesting, I guess time will tell who's right on that one. I'd say enough time hasnt passed yet , the recent hubris in the markets is eerily like April 1930
I agree with that, its probably debatable over time if its purely new bonds or just a general reduction of time preference by Bond holders. In as much as I have analysed past credit contractions I'd advise anyone to only hold 4-6 year bonds as there is price risk beyond that and no return closer in, a fulcrum in the curve as it were."I made the point that “the running of massive fiscal deficits in excess of 12 per cent of gross domestic product this year, and the issuance therefore of vast quantities of freshly-minted bonds” was likely to push long-term interest rates up, at a time when the Federal Reserve aims at keeping them down. I predicted a “painful tug-of-war between our monetary policy and our fiscal policy, as the markets realise just what a vast quantity of bonds are going to have to be absorbed by the financial system this year”.
I'm still going for the deflation call on this one , I just think the private deflation trumps the Fed's ability to inflate. Niall is looking at a very short term rebound in commodities, there is no evidence yet to say this is the start of a new trend. For now I'd expect the commodities to rollover during the summer.No doubt there are powerful deflationary headwinds blowing in the other direction today. There is surplus capacity in world manufacturing. But the price of key commodities has surged since February. Monetary expansion in the US, where M2 is growing at an annual rate of 9 per cent, well above its post-1960 average, seems likely to lead to inflation if not this year, then next. In the words of the Chinese central bank’s latest quarterly report”.Économiste Moné wrote: »but I remember when Bernanke was asked for specifics on the 'green shoots' he mentioned low mortgage rates and an increase in the ability to refinance.
I'm sure its key in Ben's head to keep the rates low , but it looks like they have just had their bluff called by the market. The Fed has never been able to manage the long end of the curve over time , it seems to be policy on the fly.
Some people are viewing the increase in oil as one of the 'green shoots' along with the strong consumer confidence & sentiment indexes; existing home sales, durable goods orders, and weekly jobless claims being better than expected and Dollar LIBOR levelling out at .65%. That GDP number was still horrible, yet reaction seemed pretty mute. I can see why there's optimism, but when people are optimistic with 625k jobless claims there's error in just calling a max, ergo recovery. The inflation fear might show for indirect bids at the next 30 year auction. The Fed still has about $200bn in Treasuries left to buy.
The Euro Area looks pretty weak with the 0% inflation flash estimate, Euribor isn't going where the ECB would like:
If U.S. mortgage rates keep going up the only solution I've heard being discussed is to wipe out a proportion of the principal.0
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