{"id":24786,"date":"2017-08-21T20:32:59","date_gmt":"2017-08-22T01:32:59","guid":{"rendered":"http:\/\/olduvai.ca\/?p=24786"},"modified":"2017-08-21T20:32:59","modified_gmt":"2017-08-22T01:32:59","slug":"stock-bond-markets-in-denial-about-qe-unwind-but-banks-treasury-dept-get-antsy","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=24786","title":{"rendered":"Stock & Bond Markets in Denial about QE Unwind, but Banks, Treasury Dept Get Antsy"},"content":{"rendered":"
\n

Stock & Bond Markets in Denial about QE Unwind, but Banks, Treasury Dept Get Antsy<\/span><\/a><\/h3>\n<\/header>\n
\n

\u201cLet markets clear.\u201d It\u2019ll be just \u201ca financial engineering shock.\u201d<\/strong><\/p>\n

Stock and bond markets are in denial about the effects of the Fed\u2019s forthcoming QE unwind, whose kick-off is getting closer by the day, according to the minutes<\/a> of the Fed\u2019s July meeting.<\/p>\n

\u201cSeveral participants\u201d were fretting how financial conditions had eased since the rate hikes began in earnest last December, instead of tightening. \u201cFurther increases in equity prices, together with continued low longer-term interest rates, had led to an easing of financial conditions,\u201d they said. So something needs to be done about it.<\/p>\n

And \u201cseveral participants were prepared to announce a starting date for the program at the current meeting\u201d \u2013 so the meeting in July \u2013 \u201cmost preferred to defer that decision until an upcoming meeting.\u201d So the September meeting. And markets are now expecting the QE unwind to be announced in September.<\/p>\n

Since then, short-term Treasury yields have remained relatively stable, reflecting the Fed\u2019s current target range for the federal funds rate of 1% to 1.25%. But long-term rates, which the Fed intends to push up with the QE unwind, have come down further. As a consequence, the yield curve has flattened further, which is the opposite of what the Fed wants to accomplish.<\/p>\n

The chart shows how the yield curve for current yields (red line) across the maturities has flattened against the yield curve on December 14 (blue line), when the Fed got serious about tightening:<\/p>\n

\"\"<\/p>\n

Yields of junk bonds at the riskiest end (rated CCC or below) surged in the second half of 2015 and in early 2016, peaking above 20% on average, as bond prices have plunged (they move in opposite directions) in part due to the collapse of energy junk bonds, which caused a phenomenal bout of Fed flip-flopping.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Stock & Bond Markets in Denial about QE Unwind, but Banks, Treasury Dept Get Antsy \u201cLet markets clear.\u201d It\u2019ll be just \u201ca financial engineering shock.\u201d Stock and bond markets are in denial about the effects of the Fed\u2019s forthcoming QE unwind, whose kick-off is getting closer by the day, according to the minutes of the […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[63,5185,303,661,662,1138,3650,2202,4254,4255],"class_list":["post-24786","post","type-post","status-publish","format-standard","hentry","category-economics","tag-banks","tag-bond-market","tag-fed","tag-qe","tag-quantitative-easing","tag-stock-market","tag-us-federal-reserve","tag-us-treasury","tag-wolf-richter","tag-wolfstreet"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/24786","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=24786"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/24786\/revisions"}],"predecessor-version":[{"id":24787,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/24786\/revisions\/24787"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=24786"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=24786"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=24786"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}