82.2 The Federal Reserve is NOT a Central Bank Pt. 2

———Ep 82.2 Summary———

In March 2020 long-term US Treasury yields shot higher – why? Aren’t these safe assets? Did the ‘Treasury market break’? No. Yields shot higher due to illiquidity. And liquidity is JOB #1 of a central bank. So… here’s looking at you Federal Reserve.

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———Ep 82.2 Topics———

01:08 What happened in March 2020 according to mainstream, orthodox theory?
02:51 Is the US Treasury market the biggest market? Yes. But also no, at least not for all USTs.
05:05 What kind of risks are associated with off-the-run US Treasury securities?
06:15 Are US Treasuries truly “risk free”?
07:57 How does a money dealer hedge US Treasury risk? Shorting another Treasury (on-the-run).
09:00 Where does a money dealer find a US Treasury to short? The repo market.
10:31 What happens if the above steps happen at scale, across all money dealers? 2008 and 2020.
14:50 The Federal Reserve meeting minutes in April 2020 focused on OTR and OFR USTs.

———Ep 82.2 References———

The Fed Is the Perpetual Janitor, Cleaning Up After Itself: https://bit.ly/3ird5Cw
Alhambra Investments Blog: https://bit.ly/2VIC2wW
RealClear Markets Essays: https://bit.ly/38tL5a7


Jeff Snider, Head of Global Investment Research for Alhambra Investments and Emil Kalinowski.