2017/07/05 Commentary: Bond Bubble Burst?
© 2017 ROHR International, Inc. All International rights reserved.
Extended Trend Assessments reserved for Gold and Platinum Subscribers
Commentary: Wednesday, July 5, 2017
Bond Bubble Burst?
The govvies have been under pressure again since last week Tuesday’s less accommodative noises from both the European Central Bank (ECB) and Bank of England (BoE.) The BoE’s Governor Mark Carney would seem within his rights to discuss a more aggressive interest rate stance after recent combined influences. That was from both higher than expected recent inflation figures and the BoE Monetary Policy Committee vote at their last meeting moving closer to hiking the base rate than many had expected. That was exacerbated by the ECB’s Mario Draghi discussing the elimination of downside economic risks in the Euro-zone and hinting at a reduction of the ECB’s Asset Purchase Program, their designation for Quantitative Easing (QE.)
The net effect has been to create a typical quantum dislocation in bond markets that had become too sanguine about the lack of accelerated growth and inflation. Yet it has also been the case that previous concerns about accelerated economic growth leading to higher inflation and long-term interest rates have been misplaced. Within the broader context going back into 2013 (the reason for the broad opening chart), the initial May 22, 2013 Federal Reserve notice it was going to ‘taper’ its &70 billion per month bond buying program caused a sharp implosion in US 10-year T-note prices (the ‘Taper Tantrum’) into early July. While subsequent influences are too numerous to review here, across the next several years economic indications were weak enough to encourage a T-note rally up to (astoundingly enough) higher levels than prevailed at the ‘taper’ announcement.
The point here is that central bank bond buying (or the lack of it) is rarely more than a short term influence. Bonds are priced on inflation and inflation expectations with some influence from the economic conditions that drive those two aspects. As long as those are subdued there is little chance of a sustained major escalation of bond yields and the attendant drop in bond prices. We presume most of you know that. Yet the other factor at play in the fear of potential ECB QE tapering is… it probably won’t do so. Click through to the extended analysis for interesting considerations of why not.
Authorized Silver and Sterling Subscribers click ‘Read more…’ (below) to access the balance of the opening discussion. Non-subscribers click the top menu Subscription Echelons & Fees tab to review your options. Authorized Gold and Platinum Subscribers click ‘Read more…’ (below) to also access the Extended Trend Assessment as well.
2017/07/12 Commentary: ‘Normalization Bias’ NOT Back!!
2017/07/12 Commentary: ‘Normalization Bias’ NOT Back!!
© 2017 ROHR International, Inc. All International rights reserved.
Extended Trend Assessments reserved for Gold and Platinum Subscribers
Commentary: Wednesday, July 12, 2017
‘Normalization Bias’ NOT Back!!
Yet there it was this morning in both her pre-released opening statement and subsequent testimony that Fed Chair Yellen felt the federal funds rate increase cycle might be close to the end…???! This should not have been a total shock, as it was previewed in a speech by Fed Governor Lael Brainerd on Tuesday. Yet many times the indications from other Fed members are just so much personal opinion and not policy.
However, in this case the ‘boss’ has come out and confirmed a far less aggressive rate increase tendency. As regular readers know, we have been concerned that in the face of weakening indications on the US economy (more below) the last FOMC meeting’s projections and press conference seemed way over the top on US growth expectations, employment and inflation. Indicating another 2017 rate hike and three more into 2018 seemed the same sort of misguided view as the Fed’s ‘normalization bias’ through 2015 into much of 2016. Chair Yellen seemed to diminish quite a bit of that today.
And the irony is that the Fed claims its more aggressive growth and inflation projections for next year are not in any way based on tax reform or other fiscal stimulus. Yet there are many outside of the Fed who believe that there cannot be enough US growth (i.e. ramping back up to 3.0% GDP growth) to justify the Fed’s more aggressive rate increase plans without it. So the irony we have noted previous still remains: what if the Fed’s current interest rate increase plans are only rescued by the very reforms that Chair Yellen asserts are not incorporated into the FOMC projections as yet? And that gets us back to the latest revelations surrounding the Trump administration and family…
Authorized Silver and Sterling Subscribers click ‘Read more…’ (below) to access the balance of the opening discussion. Non-subscribers click the top menu Subscription Echelons & Fees tab to review your options. Authorized Gold and Platinum Subscribers click ‘Read more…’ (below) to also access the Extended Trend Assessment as well.
Read more...