Unfortunately, the SOMA details for the week ended April 23 show no Open Market purchases of any TIPS. I say that is unfortunate because it would have provided an easy answer to the breakevens mystery I noted on Wednesday. As it is, the 5-year breakevens remain elevated on apparently well-bid 5-year TIPS. Swap spreads have decompressed almost fully in the [...]
Someone was apparently in need of 5-year TIPS late last week, as the yield dropped 14 bps on Thursday (from -0.06% to -0.20%) ahead of the holiday weekend. You might assign such a move to illiquid markets ahead of Easter, but the yield actually fell another 3 bps on Monday. Strangely enough, there was no reciprocal move in either the [...]
A basic building block of funding market dynamics is not only expected rate movements but the time value of money, i.e., the curve shape. Normally, you would expect a steeper yield curve to be consistent with stronger economic growth. In terms of dollar funding, you can package eurodollar trades (either bundles or packs of various “colors”) to buy short and [...]
The potency of QE is theoretically driven by how it is expected to influence economic agents’ perceptions of inflation. The concept of negative real interest rates after hitting the zero lower bound of nominal interest rates (ZIRP) is believed to nudge the behavior of participants in the economy to spend and borrow more as saving becomes relatively more expensive and [...]
Clearly the Federal Reserve has taken seriously the consequences of QE and its relation to asset prices in so many markets. That itself represents a leap forward as perhaps the central planners in the Marriner Eccles building in Washington, DC, are beginning to understand that markets are not classroom exercises. In this bizarro world of unintended consequences, stocks actually are [...]
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