It doesn't sound like the Fed is too interested in negative interest rates:
https://www.cnbc.com/2020/03/15/powell- ... tates.html
If this is true... well, all those Long Term Treasuries aren't looking so great anymore since all that bond convexity benefit would go poof.
Any thoughts to how this plays out if the Fed starts buying up commercial paper instead?
Thoughts (especially Tyler)?
Powell says no to negative interest rates?
Moderator: Global Moderator
-
- Executive Member
- Posts: 326
- Joined: Tue Oct 19, 2010 3:35 pm
- mathjak107
- Executive Member
- Posts: 4456
- Joined: Fri Jun 19, 2015 2:54 am
- Location: bayside queens ny
- Contact:
Re: Powell says no to negative interest rates?
The fed may not have a say ...the worlds investors carry a lot more power over our bonds than the fed could ever afford to ...where they bid them odds are they are going and there is not much the fed can do other than voice displeasure
Re: Powell says no to negative interest rates?
The Fed does not control rates on bonds. Bonds yields can go negative without the overnight rate going negative if the market keeps pushing rates down. He also did not say he would never do negative rates there, he said he didn't think it would be "appropriate" and that he would want to use up his other tools first.
The Fed also already announced today that they are backstopping the commercial paper market, which is exactly contrary to what he said in that article a couple days ago. So that just shows how much you can trust what he says. I don't think this has any effect on treasuries, they are simply trying to prevent the corporate money markets from freezing up. Corporate and junk spreads blew out over the last week, maybe this potentially brings the corporate and junk spreads back a bit? Maybe not though, still an awful lot of risk out in the corporate bond world these days. An implosion in corporate bonds would certainly increase the already elevated demand for treasury bonds (this would trigger a deflation greater than the 2008 financial crisis).
The Fed also already announced today that they are backstopping the commercial paper market, which is exactly contrary to what he said in that article a couple days ago. So that just shows how much you can trust what he says. I don't think this has any effect on treasuries, they are simply trying to prevent the corporate money markets from freezing up. Corporate and junk spreads blew out over the last week, maybe this potentially brings the corporate and junk spreads back a bit? Maybe not though, still an awful lot of risk out in the corporate bond world these days. An implosion in corporate bonds would certainly increase the already elevated demand for treasury bonds (this would trigger a deflation greater than the 2008 financial crisis).
Re: Powell says no to negative interest rates?
I'm with you guys on this one. A lot of people seem to think that the Fed has unilateral control over interest rates. They don't. They are a large influencing factor, but they don't have unilateral control.
Alan Greenspan said as much about his tenure after the financial crisis. People lambasted him for keeping interest rates too low for too long. He kept trying to explain that there were exogenous factors, such as a rising middle class in China, that now had savings that needed to be invested, which pushed yields down and prices up. Not that he's totally absolved of any responsibility, but I think there was some element of truth to his defense.
Alan Greenspan said as much about his tenure after the financial crisis. People lambasted him for keeping interest rates too low for too long. He kept trying to explain that there were exogenous factors, such as a rising middle class in China, that now had savings that needed to be invested, which pushed yields down and prices up. Not that he's totally absolved of any responsibility, but I think there was some element of truth to his defense.
🛞 The All-Terrain Portfolio 🛞
Re: Powell says no to negative interest rates?
Powell will do what he is told to do...Smith1776 wrote: ↑Tue Mar 17, 2020 4:58 pmI'm with you guys on this one. A lot of people seem to think that the Fed has unilateral control over interest rates. They don't. They are a large influencing factor, but they don't have unilateral control.
Alan Greenspan said as much about his tenure after the financial crisis. People lambasted him for keeping interest rates too low for too long. He kept trying to explain that there were exogenous factors, such as a rising middle class in China, that now had savings that needed to be invested, which pushed yields down and prices up. Not that he's totally absolved of any responsibility, but I think there was some element of truth to his defense.
He is not the only on who get to vote on Negative Rates.
The Fed influences the short end of the curve.
In Japan I believe They have a Yield Curve Control (YCC) to manipulate father down the curve.
So don't put it past the FED to bring it to America to Infect us.
¯\_(ツ)_/¯
Re: Powell says no to negative interest rates?
1. Powell's job is basically to say anything to calm the markets. He'll say the opposite tomorrow if he believes it will help.
2. Even if true, the ping-pong of bond volatility at low >0 rates can still be useful for rebalancing purposes.
3. Who really knows? I don't pretend to be a macroeconomic expert. But I do believe strongly that most of the alternatives to a well-diversified portfolio including LTTs are even worse options right now.