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’More mystery in quarterly repo patterns
Readers might remember a WSJ story earlier this year which highlighted intriguing end-of-quarter peculiarities in New York Fed data on primary dealers in repo markets.
The WSJ’s point was that the irregularities could have been the result of banks trying to mask their risk levels in the past five quarters by temporarily lowering their debt,
Keep your credit, buy our stuff
We’ve written before about the difficulty of knowing whether the decline in small business lending is a problem of supply or demand.
The answer matters not just to the health of small businesses, but for knowing whether the Fed’s easing measures have been successful in circulating credit throughout the economy.
The Fed, and what to do about MBS
Not that the Fed has ever been a model of clarity and decisiveness, but the announcement in August that it would re-invest proceeds from its MBS holdings into long-dated Treasuries left open a few questions:
A nightmare scenario
Here is a disturbing, though not unfathomable, possibility envisioned by Economics of Contempt:
Let’s say the European sovereign debt crisis flares up again, and one or two Euro banks fail. (Not a bank like UBS or Deutsche Bank,
Highlights (and lowlights) from the Beige Book
Just as the US was turning its weary eyes to Barack Obama’s speech on the economy on Wednesday, the Federal Reserve Board released the sixth Beige Book report of the year. This most recent edition covers activity in the last half of July and all of August.
Guest post: The Fed does not want debt monetisation
FT Alphaville presents a guest post from Jerry H. Tempelman, CFA, who was previously a Senior Financial and Economic Analyst with the Federal Reserve Bank of New York. The views expressed are strictly his own.
Stop the market – the Fed wants to get off
Oops.
The Federal Reserve didn’t mean for its recent QEII announcement — that it would be reinvesting proceeds from its maturing securities portfolio — to so greatly affect investors.
So said Minnaepolis Fed president Narayana Kocherlakota in a (telling) Tuesday speech:
A telling speech
This speech by Minneapolis Fed president Narayana Kocherlakota had a couple of insights into the Fed’s thinking that are worth noting.
Here’s an excerpt from the speech discussing the FOMC’s recent decision to re-invest the money from repaid MBS into treasuries:
Fed up
And the early US market take on the Federal Reserve’s latest policy shift was…
Oh dear. European bourses, by comparison, had already given up the fight:
All this after USDJPY ploughing a 15-year low plus some deflated Treasuries.
The Fed’s QEII: What the pundits say
Some commentators and analysts have lauded the Fed’s Tuesday decision to begin reinvesting more than $150bn in annual proceeds from maturing mortgage-backed and agency securities into Treasury debt.
But others echo the suggestion of the FT’s Lex column,
The BoE and central bank forecasting
Central banks are no strangers to criticism, but we wonder if the Bank of England was remotely prepared for the smackdown it was just given by FT economics editor Chris Giles:
The forecasts used by the Bank of England to set interest rates are biased and contain little useful information,
The ECB’s QE doesn’t inhale
According to Morgan Stanley, the ECB’s recent foray into government bond purchases means the US Federal Reserve is now closer to an exit from quantitative easing (QE) than the European bank.
Which leaves the MOST analysts with a number of questions regarding its current actions.
Eurozone banks sip at ECB’s dollar swap facility
Rumours of an interbank funding squeeze swirled through the market last week.
Barclays Capital analysts for example noted that demand for USD funding in Europe had spiked in recent days:
The activation of fresh ECB,
Fed bank supervision: the case for the defence
Ben Bernanke’s prepared testimony for his appearance before the House Financial Services Committee on Wednesday makes a case for the continued independence of the Federal Reserve, at least as far as bank regulation is concerned.
Flight of the doves… to the Fed
Whispers around the White House say President Obama is poised to pick Janet Yellen to be the Federal Reserve vice chairman, Reuters has reported. After Donald Kohn’s departure, is it the Fed doves’ time to shine once again?
After all,
Debunking carry-trade denial
To carry trade or not to carry trade. That is the question.
In the last few weeks a host of different banks have stepped forward to question both the depth and degree of the current dollar carry trade. Among them have been Goldman Sachs,
Debunking the size of the carry trade
Historically low interest rates in the United States are, as we know, supposedly encouraging investors to put on dollar-funded carry positions.
But while current interest-rate differentials might imply this is a very profitable and popular trade,
A balance sheet comparison
We’ve become used to seeing charts of the Fed’s expanded balance sheet over the course of the crisis, but here’s a useful comparison of the balance sheets of all four of the world’s major central banks,
Bargaining Tier 1
Remember how the Fed was testing reverse repos with money market funds as a potential way to drain QE liquidity out of the system further down the line?
Well, some blogosphere talk (Zero Hedge, ahem) appears to suggest the Fed may now be backing away from the idea of using non-traditional participants like money market funds altogether,
How accounting changes can create a world of investment banks
“Accounting changes must be coordinated,” ran headlines on Fed Governor Elizabeth A. Duke’s Monday speech.
In actuality Ms Duke went much further — not only suggesting that the world’s two major accounting bodies,
The interest rate disconnect
The world’s central bankers gathered at Jackson Hole over the weekend. What a party that must have been.
The foremost topic of discussion: low interest rates and associated unconventional monetary policy — quantitative easing by any other name.
CIT saved, but troubles still brewing in the CP market
David Rosenberg of GluskinSheff draws attention to the continuing contraction of the US commercial paper market, one of the main portals of funding for medium-sized enterprises in the country. In his latest report he writes (our emphasis):
Bernanke testifying on BofA/Merrill merger
You can watch it on Bloomberg TV, click below and then launch the video player.
Related links:
Fed faces cover-up claim on BofA merger – FT
Will Ken Lewis convince Congress? – FT Alphaville
Fed leaves rate unchanged, continues to see ‘subdued’ inflation
Pretty much as expected then. Here’s the statement:
Information received since the Federal Open Market Committee met in April suggests that the pace of economic contraction is slowing. Conditions in financial markets havegenerally improved in recent months.
Who’s not bothered about inflation?
Here’s a nice graphic from the Bank of England’s recently released handbook on the “State of the art of inflation targeting”:
Notice any substantial central bank missing from the chart? If you’re having trouble clocking it,
Bernanke conundrum calculator
What fun.
Political Calculations has built a calculator, using a formula inspired by some Calculated Risk data, that generates predicted mortgage rates based on current Treasury yields — and vice versa.
Congressional Oversight Panel says stress tests not stress-y enough
The Congressional Oversight Panel – the body chaired by Elizabeth Warren and which has repeatedly criticised the US government’s handling of the financial crisis – released a report on Tuesday that (shock!) criticised the bank stress tests conducted by the Fed.
Negative convexity at the Fed
Negative convexity in relation to the US Federal Reserve is something that’s been discussed on this blog before. It’s rather interesting then, that just as talk of an impending convexity event heats up,
More on maximum negative convexity
Wading into the Treasuries sell-off and negative convexity debate this Monday is Deutsche Bank.
Their central premise: you can’t explain the recent US government bond sell-off by convexity hedging alone.