Intermoney | The increased scarcity of paper is prompting money funds to dump their excess liquidity in the reverse repo window, for which the Fed is offering 0.8%. In fact, demand for Fed reverse repurchase agreements reached new highs after 94 participants placed a total of $2,045 tr. As we have explained, the increased interest in reverse repo trading, which is usually an investment of last resort, has been exacerbated…
Fernando González Urbaneja | The relationship between bond and share prices is well known; when bond yields fall, shares are likely to rise. And the opposite is true, the lower the bond yield, the higher the share price. This is the general thesis that admits exceptions and variants. Bond prices are closely linked to the interest rate determined by central banks as well as the risk premium applied to each…
J.P. Marín-Arrese|Skyrocketing prices confront central bankers with a challenging dilemma. Their sacred duty to preserve stability forces them to take vigorous action to curb inflation. Yet, they are conscious that tightening the monetary stance will fail to put on hold the current supply shock. Worse still, only by pulling hard on the hand brake coulld they stop short prices from escalating. A move that would come at a heavy cost…
Juan Pedro Marín-Arrese | The hawkish and straightforward message Jerome Powell delivered yesterday surprised analysts and markets alike. They expected a non-committal press conference following a routine FOMC meeting. Instead, Powell unfolded the planned roadmap for monetary tightening. He even announced a rate hike in March, breaking the rule of refraining from providing precise tips on future action, coupled with a sharper than expected increase in federal funds rates. It…
J.P. Marín Arrese | Charles Dickens opens his novel by describing the contrast between the sedate life in London and the bloody spasms shaking Paris under the Revolution with the famous sentence: ‘It was the best of times, it was the worst of times…’. While the current economic scenario bears little in common with the dramatic events described by the prominent author, we enjoy a robust recovery but face an…
The investigation follows the recent resignations of Rosengren and Kaplan, presidents of the Boston and Dallas Federal Reserve respectively, for questionable trading in 2020. The spotlight is now on Clarida, the Fed’s vice chairman, after she moved between $1m and $5m from a bond fund to an equity fund a day before Powell’s statement in late February 2020, in which he announced possible Fed policy action because of the pandemic….
Simon Harvey (Monex Europe) | While every sell-side analyst didn’t expect the FOMC dot plot to signal a rate hike in 2022, markets had other thoughts. While two members shifted their expectations to move the median dot plot to signal rates at 0.3% in 2022, this under-delivered in the eyes of rates markets. The price of eurodollar 2022 futures rose, in turn lowering the expected interest rate, while risk was…
J.P. Marín Arrese | Jay Powell was crystal clear in Jackson Hole about his willingness to scale down QE starting by the year close. As the US economy is recovering at full steam and prices skyrocket to a 13-year record, the idea that monetary policy will soon switch from the current over-loose stance to a more neutral one is hardly surprising. His message even sounded dovish as he cautioned against rushing into fighting inflation. He considered its current upsurge temporary, however, dismissing this upsurge might poise an…
Today, Monday 7 June, the Fed will start selling its positions in 16 corporate debt ETFs ($8.6 billion) as part of its decision to unwind $13.8 billion in ETFs and bonds under the Secondary Market Corporate Credit Facility before the end of the year. The turn for corporate bond sales will come after the summer, in both cases proceeding in a “gradual and orderly” manner.
Keith Wade (Schroeders) | Headline CPI inflation rose to 4.2% year-on-year in April the highest level since September 2008. Meanwhile the core measure, which strips out food and energy prices, rose to 3%, a level last seen in 2006. It is unlikely that the inflation figures will spook the Federal Reserve, although they will mean an upward revision to its forecasts. More importantly, when combined with strong growth in GDP, it will have to start to think about slowing its asset purchases.