It’s standard textbook stuff. Convention has it that “capital flows” are determined by the portfolio effects of interest rate differentials. Quite simply, if yields aren’t very high for low risk US instruments (like UST’s) or their European counterparts, fixed income managers must go hunting for yields overseas in Emerging Markets who offer fatter returns by comparison. Thus, “capital” is said [...]
I've been getting that question a lot these days. How high can rates go? It is asked in a way that seems to imply that the answer is obvious - not much. Why? The answer is almost always the same; the Fed can't and won't let rates go up. If they did, it would kill the economy and raise the [...]
It’s understandable, even natural to focus on the amplitude of this or any BOND ROUT!!! and make comparisons to past reflationary trends on that basis alone. But what about frequency? By that, I don’t mean how frequently reflation shows up, though it has been fairly regularly if only because we never get any of that inflation and recovery predicted during [...]
Australia, by contrast, now that’s becoming a proper bond rout. While the country’s central bank clings to its yield curve “control” fantasy, the long end of the AGS curve has gone true vertical. Yielding as little as 1.04% just four weeks ago on January 28, the rate for that country’s 10-year government bond has added an impressive 83 bps in [...]
All the signs were there, starting with the fact that the Fed and ECB together had supposedly the flooded the world with digital money yet a palpable “something” was really off. Ben Bernanke’s central bank had unleashed both ZIRP and QE, the latter of which had finished up a couple months before. In Europe, Jean Claude-Trichet’s outfit was “highly accommodative” [...]
According to the Federal Reserve’s preferred inflation measure, the PCE Deflator, consumer price pressures remained muted in January 2021. No surprise, given the absence of inflationary conditions contained within the prior released CPI report for the same month, as even the contribution from surging oil prices was noticeably minimal in both. The Bureau of Economic Analysis (BEA) today said that [...]
Three relatively quick observations surrounding today’s UST selloff.1. The intensity. Reflation is the underlying short run basis, but there is ample reason to suspect quite a bit more than that alone given the unexpected interruption in Fedwire yesterday.At 12:43pm EST, most of FRBNY’s electronic services experienced an as-yet unexplained problem which interrupted service, including that of Fedwire. To this point, [...]
With the UST yield curve currently undergoing its own market-based twist, it’s worth investigating a couple potential reasons for it. On the one hand, the long end, clear cut reflation: markets are not, as is commonly told right now, pricing 1979 Great Inflation #2, rather how the next few years may not be as bad (deflationary) as once thought a [...]
Last week was only four days due to the President's day holiday but it was eventful. The big news of the week was the spike in interest rates, which according to the press reports I read, "came out of nowhere". In other words, the writers couldn't find an obvious cause for a 14-basis point rise in the 10-year Treasury note [...]
The Aussies weren’t the first to drive into the YCC channel. That “honor” belonged instead where it always does: Japan. The Japanese had also pioneered yield curve control just like they had for practically every single element behind post-crisis monetary policy everywhere else around the world. It’s always a safe bet that if some central bank somewhere starts doing something [...]
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