A head-scratcher

Bloomberg is running a story entitled "Yellen Inherits Greenspan's Conundrum as Long rates Sink", noting the apparently inexorable yield decline at the back end of the curve and bemoaning the possibility of curve inversion when (if?) short rates rise, thereby threatening credit expansion.

Macro Man is left scratching his head.

Oh, if only Yellen (or Bloomberg) could identify some institution that holds, say, $2.4 trillion of Treasury bonds.  Perhaps they could be persuaded to sell a few if yield curve inversion were truly problematic.  

If only..... 


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Anonymous
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November 19, 2014 at 1:54 PM ×

In the G7 sovereign space, US doesn't look bad on a relative basis.
If equities rise too quickly though, I can envision the FED trying a bit of 50 bp medicine in Q3 or Q4 2015
They will get what they wish, eventually, but, be careful what you wish for...

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abee crombie
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November 19, 2014 at 2:18 PM ×

Nice point MM. It truly has been funny listening to the Fed watch the fixed income markets for 'signals' in the economy. They have distorted the fixed income markets so much there is no valid signal left. Save perhaps their famous 5y5fwd Inflation rates that every mom and pop punter trades ;-)

Its gonna be a fun couple of months when the Fed tries to switch up gears on QE

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Anonymous
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November 19, 2014 at 4:10 PM ×

What exactly is in those minutes that nobody got in advance?

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washedup
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November 19, 2014 at 5:32 PM ×

anon 4:10 - how about the high fives bullard got from the rest of the committee for saving the spoo disaster on oct 15? think that may be in there??
One of these days, Yellen will be Lucy Lu in Kill Bill and one of the hawks will get his head chopped off.
Jokes apart, I am curious to see how concerned abt the equity mkt decline they were, or if they mention it specifically.

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washedup
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November 19, 2014 at 5:39 PM ×

also MM - ref your article - I do think at some point there will have be an operation un-twist - think the process of letting stuff mature to make it happen will be way 2 slow for them to let their favorite banks eat negative NIMs.

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Mr. T
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November 19, 2014 at 6:10 PM ×

All this talk about the minutes revealing the inner hawk is really crazy. For years now we have seen their psychology at work - the economy is never strong enough to act, they are worried about the markets, terrified about tightening too early. The statements are as hawkish as they get, but that's only because they are are short.

I suspect there is concern about the spoos ("risking market volatility"), there is concern about rates and shape of yield curve, there is concern about europe and deflation, further concern about DXY, all with the backdrop of generally improving labor conditions and a fairly strong economy. This nonsense about the markets difference from the dotplots will go away - FOMC is following the market, not the other way around.

FOMC releases have been one of the best trades this year, I suspect it will continue. Rates higher into the release is a gift, but I'm looking to add to my modest equity short if there is a good pop higher.

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Leftback
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November 19, 2014 at 7:28 PM ×

Yield curve inversion, yer having a larf... that's a sign of sharp contraction following overheating in an old style normal economy with rapid growth and free-flowing credit. None of the above applies to where we are. In ZIRP, the YC flattens as QE ends, then steepens when more QE begins. If you don't believe me look at the charts.

An Operation UnTwist seems unlikely unless we get down to a 1% 10y. That would be a great way to foul up the housing sector at the moment, just when it is supposed to have recovered and Obama is about to invite millions of Central Americans in to scoop up US homes.... what an absolute tool, btw (where do those people's jobs come from, eh?). Nobody wants this executive action, not even hispanics, and certainly not the beleaguered taxpayers and legal immigrants.

IWM has now failed at 118, 117 and 116, has more room to fall to support at 114. We give up on shorting the XHB, just not working.

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Anonymous
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November 19, 2014 at 8:11 PM ×

“The Fed is admitting they have no idea where inflation is going long term,” said Michael Block, chief equity strategist at Rhino Trading

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Anonymous
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November 19, 2014 at 8:29 PM ×

Rhino Trading?

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Anonymous
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November 19, 2014 at 9:28 PM ×

Rhino trading - where all horny traders end up.

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amplitudeinthehouse
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November 20, 2014 at 9:52 AM ×

Man, following this bull market has done me in.
I had the market regulators at my door step today..I told them, there's no use coming around here when there's absolutely no chance of me say yes to you looking over my shoulder.
This has become tedious to the point of ridiculous, and I pointed such as out that If they want to keep coming around then its best they do their research and find out for themselves want lengths I'll go to to prevent such chaos with un-backable odds to develop into another debacle.
Study break from here..please yourselves regulators, because you can't and won't make this horse drink from that well. There, no surprises. Done.

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amplitudeinthehouse
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November 20, 2014 at 10:48 AM ×

Actually, not done..regulators, are you sure where not enemies?
Now done.

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Anonymous
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November 20, 2014 at 11:15 PM ×

Should read; "A ball scratcher."

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