Bonds | timiacono.com

Easing is Easy, Hiking is Hard

The recent weakness in major U.S. equity indexes (that now appears ready to continue for the fifth straight day) has surely not escaped the attention of Federal Reserve officials who have been attempting to “prepare markets” for the eventual end of super-accommodative monetary policy but, as shown below via this item at The Fiscal Times the other day, we’ve been down this road many times before since the 2008 financial crisis.

On a completely unrelated note, see this Friday Funny at reason.com that weighs in on the Ted Cruz presidential campaign announcement in The Next Political Messiah.

Conundrum 2.0

With the prospect of Federal Reserve rate hikes arriving sometime later this year comes talk of a possible conundrum similar to the one faced by former Fed Chief Alan Greenspan about a decade ago when short-term rates were nudged higher (baby-steps) but long-term rates didn’t budge. Of course, this was prime-time for one of the greatest asset inflation blow off tops in history, so, we might have that to look forward to again in the period ahead.

This topic is discussed in a Wall Street Journal story ($) today that includes the graphic below with another conundrum as indicated in red.

Also see this New York Times 3-D yield curve interactive graphic in which the U.S. public debt market looks rather normal as compared to what’s going on in Japan (length of time for unusually low rates) and Germany (recently negative rates with no end in sight).

Amid all the hubbub about the implications of the Greek election and snowpmageddon on the East Coast we are reminded that there is a Federal Reserve meeting this week, during which central bank policy makers are sure to talk about the location of the dots and the shape of the curves in the graphic below from this story at the Financial Times.

Notwithstanding the fact that Fed funds futures are notoriously unreliable for saying much of anything relevant about the future of the Fed funds rate (though they’re  not nearly as bad as the Fed’s own projections in recent years), the point of this story is a good one, namely, that the brain trust at the central bank will be giving due consideration to a major re-think of the whole idea of a June “lift off” for short-term interest rates, though they’re not likely to share much about that discussion with the rest of us.

Given the global economic headwinds (everywhere but in the U.S., or so it seems), the bond market certainly isn’t expecting a rate hike anytime soon as yields have plunged anew and the Fed is surely not anxious for a repeat of Greenspan’s mid-2000’s “conundrum” that led to the events of 2008-2009. Things are getting interesting for Ms. Yellen.

Anticipation

My favorite chart from the Jeffrey Gundlach/Doubleline Capital presentation the other day.

This one was pretty good as well – a stroll down memory lane at the last interest rate normalization campaign by ‘Ol Greenie that was affectionately called “Baby Steps“.

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