Part 2 of our overzealous post started Monday that was a bit too long- Enjoy!
There’s an old saying that the smartest guys in the room are the Bond Market or Bond Market Participants.
Bond market participants have way less to think about than their brotherin equity market participants, Basically bond participants only think of the economy, the credit worthiness and length of their investment.
Using the USA as your proxy and with the United States being the most credit worthy bond in the world, there is one less thing bond market participants have to worry about. Taking a peek at the 10-year US treasury yield which would reflect mostly economic expectation or possibly the future growth, of course there could be outside investors rushing to the US treasury market in search of higher yields boring the matter a bit, but all other things set aside under the surface post speech bond market investors are expecting greater controlled economic growth, sooner (2 year Movement.)
Dramatic Movement in the 2 Year Treasury
In order to get a most up to date chart, we needed to use futures contracts, so bear with us, as the chart goes down the yield is rising… bond guys are pricing higher rates now!
Here is a close up of the latest few days, again on the 2 Year
Not surprisingly a bit of a come back (higher prices lower yield) in the chart after such a large move.
30 Year Movement
Same use of futures contract here…
Higher chart price is lower yield? The initial drop is in the February March 2021 time frame as the Economy began to open, but take note of the move UP – lower yields in the last few weeks!
This may seem counter intuitive, but the eventual increase in rates would thwart inflation and is being expressed by lower long term rates…
We’ve talked at length on inflation versus deflation, so will leave it alone at this time but it might be noted that’s the smartest guys in the room thank future economic growth is at least higher and longer term inflation is not their concern, at least for now!
Have a Great “FOMC – Smartest Guys In the Room Review” Day!
John A Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
Federal Reserve Detailed Analysis from Last Weeks Announcement … A Very Stern Jerome Powell
As mentioned in our Preview Post last week, we have been watching the FOMC as their posture is due to change with regards to the stimulus put in motion early last year….
Jerome Powell Gets Tough
Recall as the economy was shut down last year the FOMC chaired by Jerome Powell and its members moved interest rates on the short end of the curve to zero and commenced a $120 billion per month purchase of treasuries and mortgage back securities. Both of these moves were to help stimulate the economy and to stabilize the capital markets.
Meeting their goal of stabilization and a much-improved economy the FOMC are ready to shift policies and unless any major economic or other disruption occurs Powell made it very clear that he expects policymakers to begin decreasing the $120 billion per month purchases, and if all goes well to have completely stopped monthly purchases by mid-2022.
As mentioned in some of our prior posts this message has been floated by multiple fed presidents and Capital Markets seem to be taking this news in stride, much to participants and reserve members’ pleasure.
Much of the mainstream media seemed to report that there was no major change in policy or tone to which we disagree. In listening to Powell especially in his interviews after the pre-plan reading of notes, he seemed much firmer and resolved to stop the monthly purchases and the tone in his voice in our minds, let us know if this would occur in the very near future.
As has been mentioned before many of our fellow professional investors have long desired this happened many months ago, but no matter, it appears that it is about to occur slowly and diligently, and capital markets are accepting.
On another totally different and non-market related and non-economic related topic several federal reserve members had transactions over the past year that were not optically good for the federal reserve. One of the members is our very own favorite Robert Kaplan who had multiple large transactions in securities that the federal reserve was involved.
While we will voice no opinion on this … Jerome Powell was very stern surprisingly, and in our mind so stern that it could be an occupational loss for some of these members. It will be interesting to see what comes out of this, but this is not the end of it and once again Powell was very angry and forceful on this point.
Bottom line we would expect a taper, slow lane of monthly purchases to commence shortly and will be watching interest rates which have already made some moves as well as capital market participation.
Have a Great “About to Taper” Day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
jkfinancialinc
street-cents
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Posted in Economy, FOMC, Interest Rates, Investing/Financial Planning, Market Comments
Tagged Asset Purchase, FOMC, Interest Rates, Jerome Powell, Robert Kaplan, Taper