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Tag Archives: negative yields

What is Bill Dudley Thinking?

On August 27, 2019, Bill Dudley, former Chief Economist for Goldman Sachs and President of the Federal Reserve Bank of New York from 2009-2018, published a stunning editorial in Bloomberg (LINK). After reading the article numerous times, there are a few noteworthy observations worth discussing. Dudley’s Myopic View Before we dissect Bill Dudley’s opinions and try to understand his motivations, consider the article’s subtitle- “The central bank should refuse to play along with an...

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The Mechanics of Absurdity

Over the past few decades, the central banks, including the Federal Reserve (Fed), have relied increasingly on interest rates to help modify economic growth. Interest rate management is their tool of choice because it can be effective and because central banks regulate the supply of money, which directly effects the cost to borrow it. Lower interest rates incentivize borrowers to take on debt and consume while dis-incentivizing savings. Regrettably, a growing consequence of favoring...

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Eurodollar University: Diagramming Repo Reserves And Negative Yields

Following up on yesterday’s look at the concept of repo reserves. These are, as hopefully that narrative retelling established, very different from the inert byproducts of QE; or, bank reserves. The explanation for record low and negative yields amounts to a pretty intuitive process, though in practice it is incredibly complex. Sovereign bonds as “pristine” repo collateral (what some Economists have called information insensitive securities not subject to adverse selection processes) are not...

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More Monetary Insanity & The Negative Yielding Bond Bubble

Had to get this last one in before we hit the surf. We like to look at the Cleveland Fed’s Median CPI calculation as it removes monthly outliers that can pull the averages up or down.  It hit a 10-year high in July and is pushing up close to 3 percent. Of course, we are in deflation and U.S. bonds yields are going negative.  Doesn’t the Median CPI inflation trend confirm it? Now tell us again how many times does the Fed need to cut?   Where have they failed in meeting their dual...

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16/7/19: Corporate Yields are Heading South in the Euro Land

Some of the euro area's junk-rated corporate debt is now trading at negative yields, and over 15% of near-junk debt is also charging the lenders to provide cash to financially weaker companies: Source: WSJ While the overall stock of negative yielding debt (sovereign and corporate) is now nearing $13.5 trillion worldwide: Source: Bloomberg All in 51 percent of all European Government bonds are trading at negative yields, and just over 30 percent of all investment grade corporate bond...

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24/6/19: Markets Expect the Next QE Soon…

Adding to the previous post on the negative yielding debt, here is a recent post from @TracyAlloway showing Goldman Sachs' chart on implied probability of the U.S. Fed rate cuts over the next 12 months: Source of chart: https://twitter.com/tracyalloway/status/1141895516801732608/photo/1.The rate of increases in the probability of at least 1 rate cut is staggering (as annotated by me in the chart). These dynamics directly relate to falling sovereign debt yields (and associated declines in...

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24/6/19: Negative Yielding Debt: Monetary Contagion Spreads

Negative yielding Government debt (the case where investors pay the sovereign lenders for the privilege of lending them funds) has hit all-time record (based on Bloomberg database) last week, at 13 trillion. Source of charts: https://www.bloomberg.com/amp/news/articles/2019-06-21/the-world-now-has-13-trillion-of-debt-with-below-zero-yields.Quarter of all investment grade corporate debt is now also yielding negative payouts (note: bond returns include capital gains, so as yields fall,...

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12/6/19: All’s Well in the Euro Paradise

All is well in the Euro [economy] Paradise... Via @FT, Germany's latest 10 year bunds auction got off a great start as "the country auctioned 10-year Bunds at a yield of minus 0.24 per cent, according to Germany’s finance agency. The yield was well below the minus 0.07 per cent at the previous 10-year auction in late May. The previous trough of minus 0.11 per cent was recorded in 2016. Notably, demand in Wednesday’s auction was the weakest since late January, with investors placing bids...

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