Any Explanation for this Strange Phenomenon ?

[MacroSA]

Re: Any Explanation for this Strange Phenomenon ?

The logic behind your outlook is clearly correct and its pretty compelling.

None the less, big institutions around the world have been buying sovereign bonds at rates of zero and even negative interest for a few years now.
Many trillions of dollars of negative rate bonds have been purchased and are being held now.
I don't understand it, but I know its true. And I expect it to continue.

a lot of the buying is for regulatory reasons. i read an account of a pension fund manager in the netherlands who received a call from a regulator asking why his portfolio wasn't holding more [negative yield] bonds. he gave the obvious reply, but was told that nonetheless according to the regs he HAD to buy them, similarly they are held on bank balance sheets for regulatory reasons.

Yes, it is a fact, but I was thinking of a willing private sector.
Also, I believe in the magic of the free market’s invisible hand.

[MacroSA]

FED 2020 Bazooka

Jerome Powell Statement
15 March 2020
https://www.youtube.com/watch?v=fFmlVphKNpw

… in the past week several important financial markets, including the market for US Treasury Securities, have a times shown signs of stress and impaired liquidity. The market for Treasury Securities is a critical part of the foundation of the global financial system. It is generally the most liquid of all markets and serves as the benchmark by which many other financial assets are valued. It plays an important role in allowing households and firms to earn a safe return and manage their risks. When the stresses arise in the Treasury market that can reverberate through the entire financial system and the economy. To prevent this from happening and to support the smooth functioning of the Treasury market we announced today we will purchase at least 500 billion of the Treasury securities over the coming months.

Similar stresses have also emerged in the market for agency mortgage-backed securities, which is closely linked to the Treasury market and critically supports the ability of people to get a mortgage to buy a house or refinancing existing mortgage. To improve the functioning of this market and to ensure the effective transmission of monetary policy to borrowers in the economy we will also purchase at least 200 billion dollars of agencies mortgage-backed securities over coming months and immediately cease the runoff of these securities in our portfolio. While the primary purpose of these securities purchases is to restore smooth market functioning so its credit can continue to flow, the purchases will also foster more accommodative financial conditions.

The Federal Reserve announced a number of other actions today to support the flow of credit to household and businesses thereby promoting our maximum employment and price stability goals. Of these, I will highlight two. First, we reduced the interest rate on discount window loans by 1.5 percentage points brining that rate a quarter of a percent. The discount window plays an important role in supporting liquidity and stability in the banking system and we encourage banks to turn to the discount window to help meet demands for credit from households and businesses. To makes the discount window more effective, we will also offer discount window loans for periods up to 90 days.

Because of the importance of the US Dollar in the global economy, strains in markets for borrowing and lending dollars overseas can disrupt financial conditions here in the United States. To guard against such disruptions the Federal Reserve maintains swap lines with five major central banks. When dollar funding pressures emerge abroad so central banks can contain the pressures in their jurisdictions and prevent them from impeding the flow of credit here at home to address potential pressures in these markets during the current period of elevated uncertainty we made a coordinated announcement with the bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank to reduce the pricing on our dollar swap lines. In addition, our central bank counterparts will begin offering dollars to institutions in their jurisdictions for a term of 84 days in addition to the usual one-week operation. These long-standing arrangements carry no risk to the Federal Reserve or to the American Taxpayer.

I won’t go into details on the other actions we took today, but they involved eliminating reserve requirements for banks and encouraging banks to make use of intraday credit with the Federal Reserve and to use their capital and liquidity buffers as they support lending to households and businesses. The actions we have announced today will help American families and businesses and indeed our entire economy, weather this difficult period and will foster a more vigorous return to normal once the disruptions from the coronavirus abate.
We will continue to closely monitor economic and financial developments and their implications for the economic outlook. We are prepared to use our full range of tools to support the flow of credit to households and businesses to help keep the economy strong and to promote our maximum employment and price stability goals.

Finally, let me note that today’s FOMC meeting was in lieu of the meeting scheduled for next Tuesday and Wednesday.




Federal Reserve issues FOMC statement
March 15, 2020
https://www.federalreserve.gov/newse...y20200315a.htm

The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States. Global financial conditions have also been significantly affected. Available economic data show that the U.S. economy came into this challenging period on a strong footing. Information received since the Federal Open Market Committee met in January indicates that the labor market remained strong through February and economic activity rose at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending rose at a moderate pace, business fixed investment and exports remained weak. More recently, the energy sector has come under stress. On a 12‑month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation have declined; survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook. In light of these developments, the Committee decided to lower the target range for the federal funds rate to 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals. This action will help support economic activity, strong labor market conditions, and inflation returning to the Committee's symmetric 2 percent objective.

The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses and thereby promote its maximum employment and price stability goals. To support the smooth functioning of markets for Treasury securities and agency mortgage-backed securities that are central to the flow of credit to households and businesses, over coming months the Committee will increase its holdings of Treasury securities by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion. The Committee will also reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition, the Open Market Desk has recently expanded its overnight and term repurchase agreement operations. The Committee will continue to closely monitor market conditions and is prepared to adjust its plans as appropriate.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker; Robert S. Kaplan; Neel Kashkari; and Randal K. Quarles. Voting against this action was Loretta J. Mester, who was fully supportive of all of the actions taken to promote the smooth functioning of markets and the flow of credit to households and businesses but preferred to reduce the target range for the federal funds rate to 1/2 to 3/4 percent at this meeting.

In a related set of actions to support the credit needs of households and businesses, the Federal Reserve announced measures related to the discount window, intraday credit, bank capital and liquidity buffers, reserve requirements, and—in coordination with other central banks—the U.S. dollar liquidity swap line arrangements. More information can be found on the Federal Reserve Board's website.

[bpr]

Re: FED 2020 Bazooka

... eliminating reserve requirements for banks and encouraging banks to make use of intraday credit with the Federal Reserve and to use their capital and liquidity buffers as they support lending to households and businesses.

This is great, because banks have such a good record of using loosened restrictions to assist small businesses and homeowners and ignoring the low-hanging fruit of leveraged derivatives in a volatile market that rewards risk. What's the definition of insanity again?

[MacroSA]

Re: FED 2020 Bazooka

What really happened last week
Financial panic that included illiquidity and stress in the market for US Treasury Securities and mortgage-backed securities as well as clogging in the money markets.
https://www.youtube.com/watch?v=_3XzfpjJZTs

[MacroSA]

Re: FED 2020 Bazooka

It happened again today, but this time, it was more dramatic. (18.Mar.2020). See attachment.

Someone explained this phenomenon by saying that the market stop playing the divergence between the US Treasury Securities markets (meanly mid-to-long term securities) and the equity markets, because it started pricing in a high probability of an Economic Deprecation as a result of the credit deflation of the bigger debt cycle.

In other words, the K part of the “K-POOM” theory will be much deeper and longer than previously anticipated.

[jk]

Re: FED 2020 Bazooka

in crises correlations among all financial assets approach 1.

e.g. pension funds must make monthly payments; insurance companies must make monthly payments on annuities - they have to sell something to do that. they sell what is liquid; they sell what they can; they'd also rather book a profit on something that's gone up overall, than book a loss.

i expect treasury prices to continue their irregular course down. also, as the helicopters are revved up some may be anticipating inflation and also sell treasuries for that reason.

[GRG55]

Re: FED 2020 Bazooka

...i expect treasury prices to continue their irregular course down. also, as the helicopters are revved up some may be anticipating inflation and also sell treasuries for that reason.

I believe this marks the end of the nearly 4 decade secular decline in interest rates that started under Volcker's Fed Chairmanship in the early 1980s.

[Mega]

Re: FED 2020 Bazooka

With the crash in 08 the rates should have rocket, it didn't because of the Central banks.......the "CB" have killed rates & I suspect rates will not return till the CB's are killed