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Where To Now?
Markets started the week in "what now?" mode, as traders nervously eyed bond yields for signs that the storm has passed or else that the worst may be yet to come.
The earliest action hinted at some respite, as Australian yields plunged after last week's harrowing (and I do mean harrowing) surge. You're reminded that Thursday's dramatics stateside were presaged by similarly erratic moves in Aussie and Kiwi bonds.
"The Fed has largely shrugged off the recent moves in yields, viewing the rise in
Who is the marginal buyer of the long end? Issuance is set to drastically outpace fed purchases this year. And with inflation expectations high, and likely increasing it would seem suicidal to buy and hold…
Will the fed institute a harder ycc or step up their purchases if they aren’t forced into it?
TGA has $1.5T (WTREGEN) and the (potential) stimulus will cost $1.9T, spread over time. Taxes should start coming in over the next two months. The Fed is still buying bonds. Why will “Issuance … drastically outpace fed purchases” in Q1 and Q2? High inflation by 2024? Doubtful IMHO.
You mentioned q1/q2 not me.
Cbo has a 2.3 T deficit for the year before the stimulus to say nothing of a potential infrastructure bill (or student loans). Fed purchasing an annualized 1T give or take. In my opinion, participants looking for the door aren’t going to wait for things to get truly dicey.