In our age when every market disturbance is subject to intervention don’t be surprised when new intervention is coming.
Last week’s bond jiggle got plenty people nervous. Velocity being the operative word as the 10 year flew toward 1.6% in a hurry. Hence my comments in Yield Shield.
The Fed from Powell on down put on a brave face claiming the rise in yields is just a sign of confidence in the recovery.
Other central banks were having none of it:
Indeed the ECB has kept the virtue signaling up all week, ready to do more, all options on the table:
The signaling worked as the 10 year managed to revert back below a critical technical level by week’s end:
That save laid the foundation for the rally into Monday also spurred by seasonal inflows and the saving of the $ES trend to the dot:
So Monday’s rally was not a surprise especially in context of some of the technicals and historic scripts that set up for a early March bounce:
And of course the Fed ready to signal that what they said previously may not apply after all:
Hence speculation is running rampant, or at least wide spread begging for the Fed to step up and intervene:
“While the Federal Reserve may not raise its benchmark interest rate for years, there are growing expectations it may tweak policy soon to address some of the recent tumult in the bond market.
The moves could happen as soon as the upcoming March 16-17 Federal Open Market Committee meeting, according to investors and economists who are watching recent action closely and expect the central bank to address some distortions that have occurred.
One possible move would the third iteration of Operation Twist, a move the Fed last made nearly a decade ago during market tumult around the time of the European debt crisis. Another could see an increase in the rate paid on reserves to address issues in the money markets, while the Fed also might adjust the rate on overnight repo operations in the bond market.”
Yes, the old twist or repo, whatever it takes to get those signs of confidence under control.
For the threat of rising yields and inflation is actually real as yesterday’s ISM data so amply showed:
Before you know it all that confidence in the form of rising prices will eat into margins of companies priced to perfection thanks to constant interventions already in place.
Hence all eyes will be on Jay Powell on Thursday to see if he follows the steps of Bernanke and hints at something like Twist. After all it was big market hit 10 years ago also following a market correction:
After all it’s all about credibility and not signal for second that not more will be done if needed:
Always more, never less, always intervene at the slightest sign of the consequences of intervention filtering through markets. And this is how you end up with massive asset bubbles which require ever more maintenance and intervention to maintain.
The ECB, the BOJ and the Fed won’t admit to the bubble consequences of their policies, but their cousins in China just called them out:
Powell will again be on the spot. Having tried to smooth talk markets last week the words and actions of other central banks reveal his words to be empty rhetoric and now faced with increasing calls for intervention Powell is now again sitting in the self constructed trap: Appease markets and hint at Twist, repo or similar, or face the wrath of the bond market ready to challenge him and risk a major down move in equities if he doesn’t comply.
The battle line is clearly drawn:
The market is in laying in wait with the same demand it has made for the last 12 years: Gimme more stimmi. Keep the easy money flowing. The market wants more intervention, this time in the form of yield control. It’s up to the Fed to deliver or face the consequences for if yields are not brought under “control” the good news of the coming stimulus package may actually turn into bad news if yields skyrocket higher. The Fed has claimed it has the tools to control inflation. Markets want proof and it’s now up to Powell to aim to deliver a similar result as Bernanke did in 2011 and see markets race higher in relief or be prepared for a major challenge in the days to come.
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