Remember Australia’s inverted yield curve in 2012?
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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
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.
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.
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
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 it. Read more
This is the market’s view of the 30-year Treasury at the moment.
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 reaction. Read more
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
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
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
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.
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
The Cleveland Fed, one of the 12 regional Federal Reserve Banks of the US, has, perhaps admirably, managed to find what it believes is some good news in the shape of the US yield curve
In the midst of the horrendous economic news of the last month, the yield curve might provide a slice of optimism. Though the yield curve has flattened since November, with long rates falling more than short rates, the difference between the rates remained strongly positive.
An inverted yield curve, where short-term interest rates are higher than longer-term ones, has preceded each of the last seven recessions, according to the Cleveland Fed. So a steep curve, with long-term interest rates higher than the short-term, signals a recovery. Read more