Bonds & Interest Rates

Hotel California and the Federal Reserve

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Posted by Gary Christenson - The Deviant Investor

on Thursday, 12 October 2017 06:46

hotel-californiaIn 1977 the Eagles spoke to us about “Hotel California.” Lyrics are here.

A few lines from the song …

“On a dark desert highway, cool wind in my hair…

Up ahead in the distance I saw a shimmering light…

Then I was thinking to myself this could be Heaven or this could be Hell

Welcome to the Hotel California

Some dance to remember, some dance to forget

They’re living it up at the Hotel California

We are all just prisoners here of our own device

Relax, said the night man, We are programmed to receive,

You can check out any time you like but you can never leave.”

The lines have been rewritten to fit the Federal Reserve – the hypothetical “Hotel Marriner Eccles:”



Bonds & Interest Rates

The True Danger Ahead

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Posted by The Macro Tourist

on Monday, 09 October 2017 06:57

20171003-correlated-1It’s easy for me to sit back and take pot shots at the hedge fund gurus calling for a repeat of the 2008 crash. Spouting words about markets never repeating the previous crisis is kind of cheap. If I am so sure history won’t repeat, why don’t I offer an alternative theory?

Well, at the risk of embarrassing myself, here it goes.

The biggest risk out there is not credit. It is not the monster short VIX speculative position. It is not CDX leverage.

The true DANGER AHEAD lies in the universal belief that treasuries (and other sovereign fixed income) offer a perfect hedge versus risk assets.

....continue reading HERE


Bonds & Interest Rates

In Marketing and in Markets, Don't be the Mark!

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Posted by Gary Tanashian - NFTRH

on Monday, 25 September 2017 06:55

I have made countless posts lampooning the mainstream media and its eyeball harvesting, click baiting content. This content and especially the associated headlines (let’s recall the classic R.I.P. Bond Bull Market as Charts Say Last Gasps Have Been Taken, dated Dec. 2016 as but one example) are designed to whip up emotions, draw attention and thereby gain traffic and ad dollars (diminishing though they are these days). nftrh.com is and always will be ad-free, by the way.

So sure, the bond bull market may well have ended in the Brexit and NIRP dominated summer of anxiety (in fact I believe it did), but any good contrarian would have seen the trade setup to go bearish on bonds in the middle of that hysteria, not a half a year later when Bloomberg used Louis Yamada’s chart to make a big headline. From a post in June 2016 about the Silver/Gold ratio and the prospects for a future ‘inflation trade’ right at the height of the bond bull…

“All of this as the world sits in Treasury bonds and global NIRP garbage. Perfect. More and more it is looking like Brexit may have been an exclamation point.”


We later were compelled to do a 180° on that analysis after Trump mania drove ‘reflation’ expectations too high, aided by the likes of this sentiment setup (mark ups mine on a graphic courtesy of Sentimentrader) against bonds. This was not so surprisingly right around the time of the “R.I.P. Bond Bull Market” headline stated the obvious. Bonds have risen ever since.



Bonds & Interest Rates

Get Ready for an Interesting October Folks - Peter Schiff, Bill Gross, BlackRock

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Posted by Peter Schiff - Bill Gross - BlackRock

on Thursday, 21 September 2017 05:58

5d98e9a2-4f80-11e7-9d92-41080ba20685 600x400The Federal Reserve Is Now Ready to Blow It All Up

Peter Schiff, CEO of Euro Pacific Capital, said that it's "impossible" for the Fed to unwind its balance sheet. In turn, he forecasts a recession in the not too distant future. While that may be extreme, Schiff touches on a key point the feel-good-investor must now consider: we have never seen a Federal Reserve try to unwind a balance sheet of this size before, no less against the backdrop of robo-trading and real-time news. Get ready for an interesting October, folks. 

continue reading HERE

Here's what BlackRock says will happen to interest rates when Fed slims down its balance sheet


  • The Fed is expected to begin unwinding its giant $4.5 trillion portfolio, and it should not immediately have much impact on interest rates, according to BlackRock's global chief investment officer of fixed income.
  • Rick Rieder says the 10-year yield could get to 2.50 percent this year, but will rise more next year as the Fed increases the amount that it is shrinking its portfolio by to $50 billion a month.
  • BlackRock also sees huge demand for Treasurys, and that should keep U.S. yields low.


.....continue reading HERE

Bill Gross: "If they followed their plan … which basically projects over the next two years for fed funds to reach 2.8 [percent] or even 3 percent, a 170 basis point increase, then yes a recession is possible,"


  • Whether or not the Fed leads the U.S. economy into recession depends on whether it sticks to its fed funds forecast, Bill Gross told CNBC.
  • On Wednesday, the Fed reduced its long-run target for the fed funds rate to 2.8 percent.


"They just have to be very careful because it's a highly levered U.S. economy. It's a highly levered global economy and currencies and the dollar and other related assets like gold will move substantially if the Fed overstates its case," Gross said Wednesday.









Bonds & Interest Rates

Stock market slumps as Fed to kick start ‘great unwind’

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Posted by MarketWatch

on Wednesday, 20 September 2017 12:35

MW-FJ881 yellen 20170406094540 ZHDollar jumps to 2-week high as Federal Reserve says it will start asset next month

U.S. stock benchmarks retreated Wednesday afternoon as the Federal Reserve announced that, for the first time in nine years, it would start reducing the size of its $4.5 trillion asset portfolio starting in October. 

The U.S. central bank kept interest rates unchanged, as widely expected, but said it would start to shrink its balance sheet by $10 billion a month. The start of the asset unwind also places another rate increase before the end of the year by the Fed back on the table, signaling more definitively an end to the easy-money policies in the U.S. and an unprecedented unwind of crisis-era asset purchases that had helped to buoy markets over the past decade. 

During a news conference to detail its policy plans, Yellen described the unwind would be conducted “gradually and predictably.”

“Even though this is a slow and deliberate and thoughtful unwind plan, it is not without its potential to rattle markets,” said Kristina Hooper, global market strategist at Invesco. 

The Dow Jones Industrial Average DJIA, -0.01% was down 41 points, or 0.2%, at 22,337, after hitting a fresh intraday record at 22,399.33.

The S&P 500 index SPX, -0.15% was down 8 points, or 0.3%, at 2,597, after briefly touching its own fresh intraday day record at 2,508.85.

The Nasdaq Composite Index COMP, -0.39% meanwhile, was down a firmer 43 points, or 0.7%, at 6,420.

Meanwhile, 10-year Treasury note yield TMUBMUSD10Y, +1.34%  jumped to 2.28%, compared with 2.23% earlier in the session, with expectations for higher rates and additional monetary tightening, via the portfolio decrease, encouraging selling in government bonds, pushing yields, which move in the opposite direction to prices, higher. The dollar, which draws bidders in a higher interest-rate regime, enjoyed a fillip, up 0.7% at 92.475, based on the ICE U.S. Dollar Index DXY, +0.93% which measures the buck against a half-dozen currencies.



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