CME Fedwatch Odds
If these yields hold the Fed will practically be forced to cut interest rates by 50 basis points on March 18.
As it stands a quarter point cut would leave the 10-year treasury yield inverted with the Effective Fed Funds Rate by 16.3 basis points.
What’s Happening Background
- Feb 19: Fed Minutes Highlight Coronavirus Concerns and Uncertainty 8 Times
- Feb 24: Bond Yields Crash and Gold Soars on Pandemic Threat
- Feb 25: CDC Admits Spread of Coronavirus in the US Appears Inevitable
- Feb 25: Lie of the Day: This is Not a Pandemic
- Feb 25: Nearly 50% Odds of “At Least” 3 Rate Cuts by December
- Feb 26: Trump says We are “Very, Very Ready for the Coronavirus, for Anything”
- Feb 27: Useless Act: California Monitors 8,400 People for Coronavirus; 33 Test Positive
- Feb 27: Containment Fails: Coronavirus Tweets of the Day
- Feb 27: Tweets of the Day: Iran’s VP Infected, Japan Closes All Schools
- Feb 28: 5 Mistakes by the CDC and FDA Set Back Virus Testing
Mike “Mish” Shedlock
Rates have not been low for the past 10 years. If anything, they should’ve been even lower because the economy has been in horrible shape.
A continuation from my above post. I can’t totally blame people for driving the market up as the Fed has had very low rates for 10 years (at times talk of raising rates causes market fits). Then you have the Trump tax cuts from 2 years ago raising the Budget deficit, when he claimed he would reduce the deficit and national debt.
Have people never heard of supply and demand. The stock market was trading at all-times highs. So to reduce risk money is being moved to a less volatile investment of bonds. Higher number of people (think more supply) buying bonds allows sellers to lower rates (because more demand).
Why do people think the Fed misplaced rates?
As a sidebar, I would like to know who is doing all the selling, my thought would be high-frequency traders and leveraged hedge funds (probably the same people who drove the market up). Personally I a long investor and looking for deals.
What a mess,omg, zero to show (less than zero)after a decade of “expansion”,a decade of “recovery”lol,record low unemployment “rate”,GDP “rate” at a permanent “2%”,inflation “rate” near zero lol.The one and only overriding queston……can big govt hold it together to even have an election in Nov.?Vegas odds don’t look good!!
All that buying late in the session….I wonder how Monday will look when the additional cases surface and the news of “reinfection” of “recovered” patients is digested.
Have you figured out how you can reopen a quarantined area when the people there still carry the virus?
Bring on the Cash for Clunkers II.. my 04 Ford is overdue for an upgrade.
The Fed will start buying stocks and bonds and everything else like they did in 2009-2012. There is literally no way they cannot bail out the system under the circumstances. Emergency meetings this weekend in Europe. Expect an announcement come Sunday.
Is the Fed allowed to buy stocks, I thought they were only legally permitted to buy Government Securities? Might be wrong though.
Expect the same as 2008-2009. TARP-C (for Coronavirus) is coming.
Algos rule us; Only a machine would think the 30 year bond is a good deal under 3, but I’m beginning to waver in my adamant refusal to accept that it can go there…
Over this weekend, the algos will be frantically updated for one more parameter: the virus. They already know about the FED put, ZIRP, NIRP, debt out the wazoo, government deficits. They don’t know anything about the only intelligent form of life left, the viruses.
Cramer spot on?
I dislike Jim Cramer but he was spot on this morning. Monetary policy is irrelevant in this situation. Its a biologic crisis and low interest rates or even negative interest rates are not going to entice anyone to buy a house a new car or travel. The Fed just wants to be seen ‘doing something’ and juice asset prices.
It’s not much, but it may increase mortgage refinance activity.
There is a bottom limit to mortgage rates
The central banks now own every market including the stock market. By driving pension funds into the stock market, they risk bankrupting these funds for millions.
Central banks can spunk all the money they like at this. It won’t change a thing. Great depression #2 is baked in IMO.
Why is gold down 4% in this scenario?
liquidity ?
Selling insurance to cover for losses.
CB’s fixin for massive lights out money printing,next exit hyperstagflation!
and then we ll all enjoy the hyperdestagflatrecessionrebound conundrum….Great times ahead of us , I d say, rmm, bye bye buy the dips ….
Imagine the f-ing bananas things they are talking about behind closed doors right about now. “Mr. President, we recommend the Treasury start sending a $10,000 Beating Coronavirus and Staying Great America check to every taxpayer tomorrow. The Fed will lend them the 0’s and 1’s to stick in their computers…”
What is the point in holding a bond/note with a yield to maturity of 1.1%? The possibility of a huge capital loss hangs over your head unless you are willing to hold to maturity. Holding to maturity at a negative real interest rate means you get hit with the loss when you get your principal back at maturity. Guaranteed loss of purchasing power. Makes no sense.
It only makes sense from the FEDs perspective. If you want to keep the economy humming and don’t care if your investments make a profit (because you can print USD), then it makes sense to buy the bonds. Even more insane is buying a bond with a negative yield like the ECB frequently does.
“If you want to keep the economy humming ”
You don;t keep “the economy” humming by intentional mispricing of important inputs to production.
What you do, is facilitate burning of seedcorn: Consuming more than you produce. But at the same time, shield those nearest the central bank, by transferring what’s left of the shrinking pile of seedcorn from others, to them.
IOW, the connected get to spend like drunken sailors: On preening around being “billionaires” without ever having produced a lick of value; or on building bomb craters around the world without having to tax the former to do so.
Simple arithmetic being what it is, however, someone has to pay for it al. By way of working to create value they themselves will never get to spend. No different from cotton pickers in Antebellum.
Niggas aren’t the Fed’s constituency, however.
the ECB never issues bonds with a negative coupon ! Yet STUPID investors push up the price of a, lets say, 0,5 % bond till the yield is negative. I guess the same is soon bound to happen in the US; if you are stupid enough to buy a 10 year treasury with a 1% coupon and pay 110 for it, then the yield is fckn 0 !
ECB issues bonds? How so, can’t it just print without going to the trouble of selling bonds?
the ECB… you re right, I dont think they issue; the EIB, EBRD, and other european AAA rated institutions do ….but that s not my point, it was about ‘negative coupons’ , they don t have any ….yet.
The thing I never quite get, is they cut rates to the bone to stimulate spending, when we have a pension crises at the same time and need people to save.
..don t look for common sense no longer…totally useless, it is ALL gone !
Ha. Not this argument. Again.
Who holds to maturity (other than some institutions who need to pair with liability)? Them TRADING bonds. Capital Gain can be significant. Not to mention currency gain if bulls eye for a carry trade.
All T’s will be going below 1.1% — unless big monetary kaboom happens first.
And then what other tools do they have to prop up the economy? Or what will Kudlow and Mnuchin dream up? Tax cuts for the middle class? A massive infrastructure bill?
At the way things are going, they won’t wait until March 18. Reminds me of the surprise 0.5 rate cut in early Jan 2000. Followed by another a few weeks later.
“If these yields hold the Fed will practically be forced to cut interest rates by 50 basis points on March 18.”
…
If not (coordinated with other central banks) sooner.
What will be interesting is to see how long these measure hold before route continues. Back in 2008 the half life of Central Banks / gov interventions got shorter and shorter. Will they work now? How long? A week? A couple of days? Hours?
The Fed doesn’t know how to deal with deflation and it shows.