Tag: Quantitative Tightening

Shifting Gears on the cash spigot

Bloomberg – Quantitative Tightening to End as Central Banks Retreat – David Goodman & Liz McCormick 7/22/19

Net bond purchases by the Federal Reserve, European Central Bank and Bank of Japan will swing back above zero from September, according to an analysis of their balance sheets by Bloomberg Economics. That’s just eleven months since they collectively hit reverse having spent a decade pumping stimulus into their economies via quantitative easing.

The outlook shows how quickly central banks have been forced to turn tail after spending much of last year leaning toward tightening monetary policy, only to now be looking to loosen it as the world economy slows. It also underscores how their balance sheets are likely to remain permanently larger than the pre-crisis years.

For investors, the switch back, coupled with shifts toward lower interest rates, strengthens the case for buying bonds given the increased demand and shrinking supply of them. That could add fuel to a rally that’s already pushed average yields on global bonds down by almost 1 percentage point since November, left an almost $13 trillion pile of negative-yielding bonds and sparked predictions that U.S. 10-year borrowing costs could also hit zero. Those lower yields would tend to push investors back into stocks.

Since the Fed began reversing QE in October 2017, it has shed about $370 billion in Treasuries from its balance sheet which had hit $4.5 trillion in 2015. Those holdings will begin to rise later this year as the Fed ends the unwind and engineers plans to move back to pre-crisis norms of holding only government debt by slowly replacing its $1.5 trillion in mortgage-debt holdings with Treasuries.

“The Fed’s plans for the balance sheet are to shift out of MBS and into Treasuries and, given their guidance, they should be buying some bills,” said Mike Schumacher, strategist at Wells Fargo. “That will cause the curve to steepen.”

As for the European Central Bank, Bloomberg Economics is among those predicting it will announce in September that it will be purchasing bonds again. Its base case is that the ECB will start 45 billion euros of monthly net asset purchases to run for a year, starting in the fourth quarter.

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January 12, 2018

Perspective

WSJ – Advisers at Leading Discount Brokers Win Bonuses to Push Higher-Priced Products – Jason Zweig and Anne Tergesen 1/10

  • “At Fidelity, Schwab and TD Ameritrade, employees win extra pay and other incentives to put clients in products that are more lucrative for them, and the firm.”

Worthy Insights / Opinion Pieces / Advice

Bloomberg View – Even Cynics Can Love Crypto – Matt Levine 1/11

  • “There are no true believers in pump-and-dump; only those who get in early and profit.”

FT – A bitcoin bubble made in millennial heaven – Roula Khalaf 1/10

MarketWatch – The man who called a new bull market in 2012 says take your profits now – Howard Gold 1/11

Mauldin Economics – The Moment of Truth for the Secular Bond Bull Market Has Arrived – John Mauldin 1/10

Markets / Economy

NYT – Investors Spooked at Specter of Central Banks Halting Bond-Buying Spree – Landon Thomas Jr. 1/10

  • “All told, the three central banks are sitting on $14 trillion in securities they have bought since 2009: a $4.4 trillion mix of Treasuries and mortgage securities held by the Federal Reserve; the European Central Bank’s $5 trillion in corporate and government bonds; and $4.5 trillion worth of bonds and exchange traded funds accumulated by the Bank of Japan.”
  • “Moreover, the view that the United States government, in the wake of the tax cut package, will have to issue more securities to finance a larger budget deficit is giving bond investors pause.”
  • “’The U.S. is about to issue a whole lot more debt in an environment where the demand for that debt is about to go down,’ said Daniel W. Drezner, a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University. ‘What that means is interest rates are about to go up’.”
  • “And that is bad news for bond investors.”

Real Estate

WSJ – Manhattan Rent Fell 2.7% in December to Median of $3,295 – Josh Barbanel 1/11

WSJ – Malls May Be Dying, But Bets Against Their Debt Haven’t Paid Off – Esther Fung 1/9

Energy

FT – New York sues big oil companies over climate change – Attracta Mooney and Ed Crooks 1/10

Finance

FT – Bitcoin tumbles as South Korea plans trading ban – Song Jung-a and Bryan Harris 1/10

WSJ – Bond Markets Have Picked Up the Wrong Signal From Japan – Anjani Trivedi 1/11

WSJ – Chinese Dragon Still Needs U.S. Treasurys for Its Hoard – Nathaniel Taplin 1/11

South America

WSJ – Daily Shot: Venezuela Monetary Base 1/10

WSJ – Daily Shot: Venezuelan Bolivares to USD Black Market Exchange Rate 1/10