Monday, June 1, 2009

Don’t worry, it’s all under control. Ahem

Federal Reserve puzzled by yield curve steepening

The Federal Reserve is studying significant moves in the U.S. government bond market last week that could have big implications for the central bank's strategy to combat the country's recession. But the Fed is not really sure what is driving the sharp rise in long-dated bond yields, and especially a widening gap between short and long term yields.

Posted by devo @ 01:54 PM (1713 views)
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9 thoughts on “Don’t worry, it’s all under control. Ahem

  • The banks / governments are just sticking to the script, they have shown that they have tried to help, now the banks want their pound of flesh, interest rates are going to rise, cue act I scene 2.

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  • mark wadsworth says:

    Oh, they’re “puzzled” are they? This is Economics 101 type stuff, of course interest rates are going up, they’ve been going up since the bond bubble burst in December 2008.

    This whole interest rate thing is a see saw – they can intervene to keep down short term rate (and thereby push up long term rates) or intervene to keep down long term rates (by pushing up short term rates), you can’t have it both.

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  • mark wadsworth says:

    Oops, tag not closed properly

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  • Front page news… stop the press!!!

    “Experts ponder why market’s expectation is causing the obvious.”

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  • c'mon correction says:

    I’ve got a question (not related to the article I’m afraid) that I asked a few years back but no-one answered, and I’ve noticed it again recently. Why does Sterling loosely track oil prices virtually all the time? Is it some benefit to sterling that north sea oil goes up in price? I can’t see how being a net importer of oil that sterling has any strength from oil prices?

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  • c’mon correction – I think it tracks financial stocks, not oil price (who happen to rise as green shoot hopes are bouying the mood).

    Basically, risk apetite down, dollar up, sterling down, commodity down (stronger dollar) and the vice versa is true – and that is what we see here,
    in the short term anyway.

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  • refusetobuy says:

    Here’s their answer (from the market oracle article earlier today)

    There Are $2.4 Trillion of Alt-A Mortgages and Their Resets Are Mostly Ahead of Us. About $750 Billion of Option ARMs Were Written, Nearly All at the Peak of the Bubble.

    The long end of the yield curve is heavily influenced by these mortgages. Most US homeowners have the option of switching to a lower mortgage rate when their period expires. So many people are going to want to exercise this right that it’s forcing the yield curve up.

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  • c’mon correction @ 5.

    Sterling is a ‘petro-currency’. As we export most of our oil (it’s really high quality stuff and too good to burn) people deamnd our oil they also demand our currency. It’s largely the same with the dollar, although recent changes have occured because of it’s perception as a safe haven.

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  • Beartil2010 says:

    I saw this chart on Mish. It says $2.4 trillion Alt A resets, but the cumulative value of this chart is out one digit – $240 billion.

    Anyone know if it’s a mistake?

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