Posts tagged 'Yield curve'

Inquiring minds want to know: Can the BoJ control the yield curve?

It’s almost BoJ comprehensive assessment time with Kuroda’s massive JGB purchases and NIRP policy standing naked beneath the spotlights awaiting judgement from their own creators.

Part of that judgment involves the pain that a NIRP and QQE induced flattening of the yield curve has wrought on financials. Thus, as we’ve talked about already, part of the recommended remedy might involve some sort of Japanese Operation Twist to steepen said yield curve and help out said financials.

Of course, the range of things the BoJ can actually do is large and the subject of predicable disagreement. So before we get to the yield curve question, here’s some summary for those who want it. Those who don’t can skip down to below the breaks. Read more

Conundrum, redux?

Here’s the Fed’s recent hike in context, courtesy of BofAML’s Hartnett et al. You might need to squint…

When you’re done squinting, you might also dwell on the fact that long-term rates matter much more than short-term rates in the US and that we might be about to enter “conundrum” territory once again, Read more

The maddening task of measuring the “term premium”

There’s no good way to separate the duration risk premium — the compensation investors get for locking up their money for long stretches rather than constantly rolling it over — from a long-term bond yield, although plenty of people try.

A recent blog post by economists at the New York Fed gives a flavour of the challenge. You can see their results in the following chart, which attempts to decompose actual 10-year interest rates (blue) both now and in the future into pure measures of expected short-term interest rates (red) and what they call the “term premium” (yellowish): Read more

Greenspan’s bogus “conundrum”

In a previous post we noted Greenspan shouldn’t have been confounded by the “conundrum” he identified in 2005, and promised a longer explanation of this claim. To refresh, here’s the full argument he made during his semiannual testimony to Congress:

Long-term interest rates have trended lower in recent months even as the Federal Reserve has raised the level of the target federal funds rate by 150 basis points. This development contrasts with most experience, which suggests that, other things being equal, increasing short-term interest rates are normally accompanied by a rise in longer-term yields.

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Australia’s collapsing yield curve

We haven’t seen any commentary on this yet but the Australian yield curve has been flattening like a pancake this year:

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Tapering is tightening?

A funny thing has happened since the Federal Reserve announced it would begin cutting back on its bond-buying on December 18, 2013: the yield curve has flattened like a pancake.

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In Memoriam – Australia’s inverted yield curve

Remember Australia’s inverted yield curve in 2012?

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Debunking the 7 per cent threshold

Spain and Italy successfully auctioned short-term debt this morning, a result that some say was the result of funds raised at the ECB’s three-year LTRO being put to work.

It wasn’t just the short-end of the government curves that got a boost, the long-end also moved down: Read more

A US recession indicator

Interesting chart from Ruslan Bikbov at BofA Merrill Lynch.

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The not-so-fearless Fed?

The narrative around the Fed’s announcement on Wednesday is that it went ahead with a $400bn ‘twist’, towards the larger end of what was expected — despite some pretty heavy pressure from the Republicans a couple of days earlier.

But was the launch of Operation Twist such a fearless easing measure, after all? Read more

Treasury to accommodate Fed on ‘Twist’

The US Treasury would accommodate a possible Federal Reserve stimulus to drive down long-term interest rates, the FT says, citing a person familiar with the Treasury’s thinking. The effectiveness of ‘Operation Twist’ would depend on how the Treasury reacted. If it pushed the other way, and took advantage of the Fed’s buying to sell more long-dated debt, then it could minimise the effect on interest rates. However, the Treasury would be unlikely to respond to falling long-term interest rates with a sudden shift in the pattern of debt issuance, even though one of the Treasury’s strategic goals is to increase the average term of the US national debt.

Operation Twist — and shout

Strange, fast, markets. The S&P 500 closed at 1,172.53, up 53 points, or 4.74 per cent. That’s the biggest one day rise since 20 October, 2008. 10-year Treasury yields touched crisis lows. And the US dollar… don’t even ask.

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Adventures at the long end of the muni yield curve

The Bond Buyer has a story on Thursday highlighting strong demand for tax-exempt municipal bonds, which despite recent tightening are still trading at above 100 per cent of comparable US Treasuries at the long end of the yield curve.

The “magic” 5% tax-free yield is ­sustaining strong demand from retail investors. Read more

Further further reading

For the commute home, where no-one criticises your fiscal policies,

– More on Goldman’s bearish commodities turn. Read more

Double secret US quantitative easing

Ooo, now this is interesting.

Revealed in the latest minutes from the Federal Open Market Committee — a secret Fed video conference to discuss über-quantitative easing. Or, targeting an explicit yield (or ‘ceiling’) on the long-term US Treasury. From the minutesRead more


QE2-as-bank-bailout continues with a Friday op-ed by Andy Kessler, a former hedge-fund manager and author of “Eat People—And Other Unapologetic Rules for Game-Changing Entrepreneurs”.

As we’ve noted before, there’s something odd about the Federal Reserve’s second round of quantitative easing. Instead of trying to flatten the US yield curve, the Fed’s Treasury purchases look like they’re almost aimed at steepening itRead more

The distorted European bailout

Some weird goings-on in the Irish yield curve.

(Nicked from Frankfurter Allgemeine — the Ireland curve is the brown-ish one) Read more

The lonely long bond gets lonelier

This is the market’s view of the 30-year Treasury at the moment.

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Unwinding the US Treasury trade

This. Is. Crazy.

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The lonely long bond, the steepening curve

The Fed doesn’t always live up to market expectations.

Some traders had been expecting the central bank to buy 30-year bonds as part of its Wednesday QE2 announcement. But the long bond has largely been left out of the latest US Treasury-purchasing programme, with buying focused in the four- to 10-year range. Cue, as we noted post the announcement, hefty 30-year reactionRead more

Mutinous mortgage rates

Spotted in the realm of US mortgages — an increase in rates. Read more

A surprisingly large QE-ffect

A new paper from the Fed’s finance and economics discussion attempts to shed light on the flow and stock effects of large-scale Treasury purchases — in other words, quantitative easing. By and large, the $1,700bn purchase programme announced in 2009, had an average yield reduction effect of about 3.5 basis points, with the shift across the whole of the yield curve due to the purchases equal to about 50 basis points. But most interesting, really, is their opinion about the scale of the effects even despite the forewarnings given by the Fed ahead of purchases. Read more

Lower — and flatter — for longer

And the bond band played on. Wednesday’s instalment — the US yield curve flattening below 200 bps between the 2-year and 10-year:

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Flattening yield curve, flat-lining banks

In pic-form — one drag on US bank earnings:

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Clutching at the Chinese

It’s bullishness, but not as we know it.

Here’s the Nomura take on investing in a world beset by a slowing US recovery: Read more

David Rosenberg on why the yield curve will flatten – this time!

Dave Rosenberg is enjoying his moment.

On Thursday the Gluskin Sheff man took to his morning notes to answer one of the big questions regarding the Fed’s last — and future — bout of quantitative easing. Back in early 2009, the Fed set out to stimulate the economy by flattening the yield curve with its QEasing. It worked initially, but then yields began creeping back up. What then, will be different this time? Read more

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, to not waste any time “nit-picking over the Fed’s language” and instead, “look at the bigger picture”. Read more

Mapping US Treasuries – Here be deflation

Or just more Fed easing. Or bubbles. Or even a buyers’ strike.

After Tuesday’s FOMC statement, yields did this — from short to long. Read more

Data void could add to tension this week

Markets are set for a nervy few days as a week light on statistical releases will give traders plenty of time to chew on their fears of a double-dip recession, the FT says. Worsening data on the US economy, including weak non-farm payrolls, last week gave markets the jitters and sent risky assets plunging. The US Treasury yield curve, for instance, was at its flattest since May 2009, while investors sought safe haven refuge in currencies like the swiss franc. Chinese equities’ also experienced their biggest weekly drop for 16 months on growth fears. That gave the eurozone a few days respite from the bears’ focus, but Jean-Claude Trichet, ECB president, will nevertheless be in the spotlight at this month’s rate-setting meeting on Thursday. The Bank of England’s rate-setting meeting will also attract attention.

A steeper path to follow

Sovereign debt yield curves are steepening.

On Thursday, US 30-year yields hit four-month highs after a government long-dated auction received poor demand and revived worries over the federal budget deficit. Read more