Last week the world’s bond markets experienced an assault propagated by the MISERABLE U.S. five-year Treasury note auction on Wednesday followed by a more dismal seven-year sale on Thursday. Also, the Australian and KIWI 10-year notes suffered massive bouts of volatility even as the RBA and RBNZ intervened with more QE to stem the rise on the long end. We at Notes From Underground have warned that the markets were attacking the FORWARD GUIDANCE motivations of the world’s monetary authorities by attacking the long end of the yield curve as the area of least resistance because central bank asset purchases around the world have been targeted at debt instruments of much shorter duration.
Archive for February, 2021
Notes From Underground: Bonds Talking Trash To the Central Banks
February 28, 2021Notes From Underground: Was It the Fool On the Hill?
February 23, 2021On Tuesday, Federal Reserve Chairman Jerome Powell testified before the Senate Finance Committee in the semi-annual Humphrey-Hawkins Testimony and Report to Congress, in which the Fed has to answer as to how the U.S. economy is performing in relation to its dual mandate. Senator Sherrod Brown, the chair of the finance committee, is very knowledgeable and in similar fashion provided strong leadership but unfortunately he cannot censor stupid questions as politicians use the microphone for political posturing. There were many types of “when did you stop beating your wife” questions as if the Senators wished to trap Powell instead of an honest assessment.
Notes From Underground: Does the Market Care About Forward Guidance?
February 21, 2021Forward guidance is a key tool in the Federal Reserve’s arsenal, promoted in a speech long ago by Columbia University professor Michael Woodford at the Jackson Hole Symposium. In a previous communication, the central bank said, “Forward guidance is a tool that central banks use to provide communication to the public about the likely course of monetary policy.”
This tool allows the FED to establish a time-directed path for interest rates so that the MARKET does not suffer shocks from an upward surprise move in rates.
Notes From Underground: Central Banks Driving Us to Drink
February 18, 2021Last week I chatted with Richard Bonugli and Europeans Godfrey Bloom and Claudio Grass. It is worth a listen — with your favorite libation, of course — as we moved from politics to the macro global picture in full. There was a great deal of discussion about the SNB with Claudio Grass and that is enough for all of us to drink.
Notes From Underground: Extra! Extra! Read All About It
February 11, 2021On Wednesday, FEDERAL RESERVE Chairman Jerome Powell emphasized, yet again, that he and the FOMC believe UNEMPLOYMENT in real terms using its broad measure is about 10%. The recent release of labor statistics revealed a 6.3% unemployment rate but Powell stressed in his Q&A at Economic Club of New York that “the statistic doesn’t capture the full extent of labor market slack.” Bloomberg’s Craig Torres finally gave credence to the idea that Jerome Powell is focused on ending the present disparity between minority and white employment as Powell used FED data to clarify the black unemployment rate was 9.2% versus 5.7%.
Notes From Underground: At the Fed, Jobs is Priority Number One
February 7, 2021There was another round of somewhat positive unemployment data on Friday. The U.S. release was tepid but juxtaposed with the Canada data it would seem robust. The Canadian jobs number was dismal on its face as 213,000 jobs were lost and the unemployment rate jumped to 9.4% from 8.6%, although a slight increase was expected (around 8.9%). The U.S. unemployment rate dropped to 6.3% from 6.7% with a slight gain in nonfarm payroll of 49,000, although much of that was in public sector employment. Average hourly earnings rose 0.2% but of greater interest was the increase in average hours worked, which reached a highest in history according to the Liscio report at 35 hours.
Notes From Underground: What Constitutes Market Forces?
February 2, 2021This is a question that plagues NOTES FROM UNDERGROUND, where we believe 2+2=5 is a beautiful thing. The objective force created by markets has always perplexed us? U.S. Treasury Secretary Janet Yellen keeps sounding the alarm that currency values must be established by markets. This is meant to be a threat to nations that attempt to intervene through selling their currencies in the open markets in an effort to keep downward pressure on currency values to support their economies.