The Federal Reserve has pursued the unprecedented monetary policy of lowering rates to zero and increasing their portfolio from 500 billion to over 4 trillion. But as the Fed reminds us, there is a cost.
With elections looming and expectations for uncertainty to remain elevated, the relative selloff in French bonds could have quite a bit further to go - just take a look at the spread back in 2011/2012.
Greek 2Y bond yields soared, approaching 10% for the first time since September 2016, as an increasingly bitter fight between the nation’s creditors over its fiscal targets raised concerns it is running out of time to complete yet another review of its bailout program, and even sparked concerns a 4th Greek bailout may be in the offing.
The dollar rebounded from a key support level, strengthening against all major peers, pushing S&P futures higher as European shares rose, led by basic resources and real estate, while Asian stocks fall. Gold fell from its highest level since November as demand for some haven assets ebbed while global bonds declined. Oil dipped, pressured by a stronger dollar.
Jim Tisch, the CEO of Loews, is worried - worried enough that he slashed his firm's share buybacks in 2016 and explained to an anxious analyst crowd during his earnings call that "complacency reigns supreme. However, my experience has shown me that this state of affairs won’t go on indefinitely."
"Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as they have predicted. I expect to see the stock market a good deal higher within a few months."
– Dr. Irving Fisher, Economist at Yale University 1929
"The ECB and BOJ are buying $150 billion a month of their own bonds and much of that money then flows from 10 basis points JGB's and 45 basis point Bunds into 2.45% U.S. Treasuries.... I would venture a guess that without QE from the ECB and BOJ that 10-year U.S. Treasuries would rather quickly rise to 3.5% and the U.S. economy would sink into recession."
In a relatively quiet session, which may see US traders sleep in a bit after last night's Superbowl thriller, European and Asian shares rose ahead of Mario Draghi’s testimony at the European Parliament, while US equity futures were fractionally higher (up 0.1% to 2,293) after stocks jumped the most in a week, as traders assessed the trajectory for interest rates while scrutinizing every new Trump tweet.
"In reality there was never a basis for hope that the toxic third bailout would be gradually rationalized.. [you must] unilaterally restructure Greek bonds held by the ECB (which are due to be repaid in July) and adopt a parallel banking system..."
The central bank on Friday increased the interest rates on reverse repo by 10bp - the last time the PBOC raised OMO rates was more than two years ago in 2014. The PBOC also increased SLF rates, in what some have dubbed "the Most Important Unnoticed Global Event."