A few weeks ago the market would of cheered lower yields, now the street see’s the risk off trade and lower yilelds as a slowing recovery coupled with higher prices. An increase in the delta covid variant world wide is also scaring the market. Truth is, the market was getting ridiculous: up every day.
The market now getting hit on Lower Yields !
- Thread starter Tarzan
- Start date
Two words: Quantitative Easing
The Fed is pumping 120B/month into the Fixed Income and Mortgage markets... and I suspect more in other ways. I believe that a sizeable chunk thereof is ending up in the markets. Let's not forget that the Fed Funds Rate is next to 0, making money extremely cheap to borrow. Finally, some industries have received grants and bailouts... adding more liquidity. [1] Why do you think the SnP has made such a clean line?
Must be nice to be a beneficiary of this ca$h flow, eh? I wonder if they'd cut me in for a token million or two a month.
With this "alternate reality" in place, and all this "artificial liquidity" sloshing around, the laws of economics and reason do not apply. There is no price discovery anymore; there's just a fountain of cash. The Fed is like a deadlifter, pulling the markets up with massive force of money manufacturing. Check out the fed balance sheet here, and see the trillions that have been added. [2]
The danger, of course, is I********.
1. https://www.flightglobal.com/strate...ng-pandemic-aid-to-us-airlines/141762.article
2. https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm
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It's very frustrating for me. It's so SO far from a free market.
I want to see price discovery; prices based on values of goods and services. The politicians and policy makers are elbows-deep into the markets, manipulating them for whatever interest.
Take our beloved AAPL for instance. I'd like to think, "Hmmm... I wonder if they'll come out with a new innovation; what new features will be on the next phone? Next Macbook? Next gadget? How will this affect their share value?" Instead I think, "Well, AAPL is heavily weighted in the SnP, and Biden has an interest in keeping this up, they'll prolly have a nice chunk of the QE, and Uncle Jerome will buy AAPL bonds... yeah, they're going up."
You have this very warped perspective of Fed/monetary policy lol. Rates would be low regardless of QE -- it's just volatility that has been dampened (intentionally).
Yields were in the news today because they have been moving lower for some time, after hitting 1.7%+ earlier in the year. Yields aggregate the market view on growth, and if yields fall it means that the growth outlook from large investors is declining. Last q's credit impulse number was a collapse, indicating that credit demand was very weak (although today's Fed data indicates things may not be as bad). If you decompose the nominal yield you'll find it is comprised of real rate + inflation expectations. Real rate currently is negative, and inflation expectations peaked in the mid 2% range.
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MAYBE;
but just as likely, technicals like lower than weekly QQQ/TQQQ close\ temp in Tokyo, TX simply got more red on WSJ temp map.[Summer slump after summer jump] MORE virus deaths are bullish, solves social security problem.
MUB [federal tax free muni bonds]are looking better but most likely you are talking about federal debt\bonds/good correction, remarks......................................
So if Yields aggregate the market view on growth, where is it? If yields spiked up to 170+ bps, then they must have been expecting some form of growth... did it happen? What industry? Show it to me.
Imnsho, there's no growth, except for Quantitative Easing, stimulus, bailouts, and Inflation. It's smoke and mirrors. Yields spiked up because of the spectacular 120B+/month cash flow--free cash that was directed into the equity markets. The recent drop in yields/increase in bond prices portends hawkish statements from the Fed, a tapering of QE, and perhaps an interest rate hike. It is a juggernaut and the elephant in the room: so sensitive, even when Powell said, "talking about talking about tapering," it caused a dip in the equities markets. They're worried about last call... that the punch bowl won't be refilled--and moving money into bonds. The recent spike in the jobs report is making them nervous.
I think that they're still coping with the massive damage done by the lockdowns--basically a nuke to the economy.
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Lol dude you are clueless. Are you not reading? Blueline is the consensus forecast for GDP growth this year.
LEI:
One of the most ignorant comments lol.
First, a Hawkish Fed is bearish on bonds.
Second, yields don't spike UP when inflows are 120BB/mo lol.
Third, stock prices are a function of FCF and the discount rate -- if the discount rate is expected to rise, stock prices fall.
JFC.
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Low yield or low interest rate is bad for so many things:
1. Banks hoarding a lot of cash that they can't lend out. Even with the extremely low interests.
2. Consumers have a lot of cash in the banks and do not spend. Bad for economy.
3. Businesses do not want to borrow since they are not confident of the near future and demand.
4. Foreign capital (FX reserves) have been staying in US treasuries as the safest reserve currency. But when the economic activities pick up, those reserve capital will flight out of US and this can cause rapid high rate scenario.
5. The extra low interest puts pressure on other financial assets like stocks.
I recall the same thing in 2008 with the previous QE. Fed injected a lot of capital and expected banks to lend out to support the housing market. But banks did not want to take the credit risks. So the capital stayed at the bank and some were used to trade stocks...
1. Banks hoarding a lot of cash that they can't lend out. Even with the extremely low interests.
2. Consumers have a lot of cash in the banks and do not spend. Bad for economy.
3. Businesses do not want to borrow since they are not confident of the near future and demand.
4. Foreign capital (FX reserves) have been staying in US treasuries as the safest reserve currency. But when the economic activities pick up, those reserve capital will flight out of US and this can cause rapid high rate scenario.
5. The extra low interest puts pressure on other financial assets like stocks.
I recall the same thing in 2008 with the previous QE. Fed injected a lot of capital and expected banks to lend out to support the housing market. But banks did not want to take the credit risks. So the capital stayed at the bank and some were used to trade stocks...
Drilling into your second link, to https://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab3 the Fed has actually decreased it's holdings of fixed income securities and MBS holdings are flat since the end of June. Where do you get that "120B/month into the Fixed Income and Mortgage markets" number from, specifically?
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