damn, the US stock market is rallying! what the hell is going on? was this statement seen as dovish? i see it as way hawkish, am i missing something here?
Relax and be happy.
Central Bank Watch 50 replies
FOREX banks to watch list 4 replies
Are Central Banks driving the World Economy into recession? 27 replies
Central Banks interest rate 1 reply
What are "Interest Rates" that central banks announce. 3 replies
Quoting GoatTDislikedI was reading the narafa/merlin housing bubble from earlier before and I think narafa is pretty dead on with his scenario #2....
People are mortgaged up the wazoo nowadays which is fueling all this consumer spending...I think if the fed did have long term rates up to 7% the destruction of wealth would ruin the economy for years (decades?) to come. If rates did go that high, a great number of the adjustable rate mortgages would default (because I feel, borrowers don't understand the concept of how it works, just that they're getting a great low rate now). Aside from the huge destruction of wealth, the "respect" that the fed has gained throughout the Greenspan era would be wiped out by a long term feeling of resentment by homeowners everywhere (who control a large portion of wealth).Ignored
Quoting merlinDislikeddamn, the US stock market is rallying! what the hell is going on? was this statement seen as dovish? i see it as way hawkish, am i missing something here?Ignored
Quoting merlinDislikeddollar looks like its snapping back here.... could the world have initially misread the statement?Ignored
Quoting IsotonicDislikedlooks like greenie didn't follow my lead with the MP thing.:
so what should be circled instead? is the economy strong rather than steady?
come on merlin, bob...circle an option!!!Ignored
Quoting merlinDislikedwhy do yield curves invert?
i always thought it was high supply on the long end of the curve, and low supply on the short end. for instance, if there is an over supply of 30yr bonds, then banks have to lower the interest rate in order to attract buyers. just like the price of apples will drop if there is an over supply (or under demand). and if there is low supply (high demand) on the short end, then the interest rate there would increase as banks can get away with charging higher rates.
if the supply/demand priniciple i am describing is correct, then why does everyone keep talking about the "foreign investors" buying US bonds, and contributing that to the flattening yeild curve? if foreign investors are buying a lot of US bonds, wouldnt that steepen the yeild curve?
can anyone shed some light here?Ignored
Quoting merlinDislikedwhy do yield curves invert?
i always thought it was high supply on the long end of the curve, and low supply on the short end. for instance, if there is an over supply of 30yr bonds, then banks have to lower the interest rate in order to attract buyers. just like the price of apples will drop if there is an over supply (or under demand). and if there is low supply (high demand) on the short end, then the interest rate there would increase as banks can get away with charging higher rates.
if the supply/demand priniciple i am describing is correct, then why does everyone keep talking about the "foreign investors" buying US bonds, and contributing that to the flattening yeild curve? if foreign investors are buying a lot of US bonds, wouldnt that steepen the yeild curve?
can anyone shed some light here?Ignored
Quoting abobtraderDislikedYou have pretty much nailed it already just by thinking it through logically, but it may be worth finding a good econoimcs primers out there. I love economics because it provides an excellent framework for logical thought, so you should find it an interesting read.
: )
AbobtraderIgnored
Quoting IsotonicDislikedWhich economics books would you recommend? I'm impressed by your knowledge dude!Ignored
Quoting abobtraderDislikedHi Merlin,
It can get confusing because of the yield and price aspects. We know yield moves inverse to price, so if you just think of bonds from a price perspective, things become clearer. In your example the price of the bond relates to the price of apples, the yield of the bond doesn't relate to apples as apples don't really have a yield or dividend as such. Maybe apple storage costs (a negative yield ?)...anyway, enough with the apples already....sorry.
'if there is an over supply of 30yr bonds, then banks have to lower the interest rate in order to attract buyers'
I think its the other way around dude. High or excess supply produces lower prices and therefore pushes up yields. Bond issuers would attract buyers not by lowering interest rates but by increasing them (ie they offer bonds at lower prices). This is why large government deficits are thought to have the impact of increasing yields at the long end, since gvts will be supplying more paper to the market and will have to give buyers better rates to induce them to finance their profligate spending.
This also answers your question; that is, foreign buyers buying up US paper at the long end pushes up the price and reduces the yield. If you have tightening policy pushing up the front end, you can end up with inversion.
I think this is the phenomenon we are observing; a case of both insufficient supply at the long end (pushing down yields) and strong demand (foreign central banks, pension funds, insurance funds, and recycling of petrodollars back to the US so thats more foreign buyers), which also pushes down yields.
I hope this makes sense?
Abobtrader
: )Ignored