Federal Reserve officials had “many questions” about the benefits of yield-curve control when they discussed its pros and cons during their meeting in early June.
“Many participants remarked that, as long as the committee’s forward guidance remained credible on its own, it was not clear that there would be a need for the committee to reinforce its forward guidance with the adoption of a YCT policy,” minutes published Wednesday of the June 9-10 Federal Open Market Committee meeting showed. YCT refers to yield caps or targets.
Here is today’s Treasury yield curve versus the yield curve on December 1, 2005. Looks more like wholesale panic to me.
Well, it was only a matter of time with foreign central banks buying corporate bonds … and stocks.
(Bloomberg) — The Federal Reserve said Monday that it will begin buying individual corporate bonds under its Secondary Market Corporate Credit Facility, an emergency lending program that to date has purchased only exchange-traded funds.
Thecentral bank also added a twist to its buying strategy, saying it would follow a diversified market index of U.S. corporate bonds created expressly for the facility.
“This index is made up of all the bonds in the secondary market that have been issued by U.S. companies that satisfy the facility’s minimum rating, maximum maturity and other criteria,” the Fed said in a statement. “This indexing approach will complement the facility’s current purchases of exchange-traded funds.”
The SMCCF is one of nine emergency lending programs announced by the Fed since mid-March aimed at limiting the damage to the U.S. economy by the coronavirus pandemic. With a capacity of $250 billion it has so far invested about $5.5 billion in ETFs that purchase corporate bonds.
The Federal Reserve announced Monday it will begin purchases of individual corporate bonds.
The move comes nearly three months after first unveiling the Secondary Market Corporate Credit facility and one month after it began buying corporate-credit ETFs through the program.
The central bank will “create a corporate bond portfolio that is based on a broad, diversified market index of US corporate bonds,” according to a press release. (Like Fed Chair Jerome Powell’s portfolio?)
The Fed’s late-March announcement of its move into corporate bond purchases set a floor for risk assets and helped valuations rebound from their pandemic-induced lows.
Speaking of setting floors on risk assets, does that apply to ETF or residential housing too? How about municipal bonds debt like Chicago’s??
Fed Chair Jerome Powell channeling Thurston The Great Magician!
Economists at the University of Chicago estimate that more than two-thirds of the workers on unemployment insurance are making more in jobless benefits than they did at work. Some are even hauling in two to three times as much.
The Atlanta Fed GDPNow estimate for Q2 GDP is -41.907%.
Why will Q2 look like a disaster? Take a peek at April’s preliminary durable goods orders: down -17.2%. Take out transportation and the decline is “only” -7.4%. In other words, the print (actual) are lower than the surveys. And while jobless claims clocked in at 2.12 million, it is the first decline in jobless claims so far.
A 15-minute trading halt took hold after the S&P 500 Index fell 7% to 2,764.21 as of 9:34 a.m. in New York, triggering the breaker for the first time since December 2008 at the depths of the financial crisis.
And the US Treasury 10-year yield plunged 33.3% to 0.429%.
Leaving the entire US Treasury and Dollar Swaps curves below 1%.
Commodities are getting crush too. Thanks in part to Saudi Arabia turning on the oil flow (but not if spot price < extraction cost).
Put skew is in play.
The VIX is at its highest level since the financial crisis.
Where is Jerome Powell and The Federal Reserve?
The Federal Reserve said on Monday that it will increase the amount of money it is pumping into short-term borrowing markets during the current turmoil, reversing an attempt to wean investors off financing it has been providing.
Update at 4:00 pm EST. Dow down 2025 points or 7.83%. For today.
I want to thank Rick Sharga for remembering that I was one of the few that predicted what is happening today with interest and mortgage rates while most others predicted mortgage rates would rise above 8%.
The researchers created an index comprised of four factors and then used the Mahalanobis distance — a measure initially used to analyze human skulls — to determine how current market conditions compare to prior recessions.
Using this principle, the researchers analyzed four market factors — industrial production, nonfarm payrolls, stock market return and the slope of the yield curve — on a monthly basis. They then measured how the current relationship between the four metrics compares to historical readings.
This recession measure is at odds with other recession probability forecasts which forecast a recession in the next twelve months at only 28% or less.
Recession is defined as two consecutive quarters of negative GDP growth. Well, it is possible that the coronavirus will damage China GDP and maybe US GDP, but the MIT/State Street study is based on Industrial Production, Non-farm payrolls, the stock market and the yield curve slope. Only the yield curve slope (orange line) and Industrial Production (yellow dashed line) are showing recession-like trends.
Unless of course, MIT/State Street are saying there is a stock market bubble that will burst.