Wednesday, September 21, 2016

Yield Curve Control

That is the first time I have heard a central bank explicitly target a non-short term interest rate.  They are in effect saying that they will use QE to keep 10 year yields around 0.  That effectively turns the JGB yield curve into a stagnant one from overnight rates out to 10 years.  They are now explicitly trying to manipulate all interest rates on the curve.  This has never happened before.

They are just admitting that they will not let market forces affect JGBs.  But the fact is that they are already doing this, because they are the market.  In effect, there is very little liquidity in JGBs because the BOJ owns over a third of the bonds and can keep buying.

The Fed meeting today should be a non-event.  The economic data has come in weaker lately and that provides just the perfect excuse to kick the can till after the elections.  Still expecting a short lived pop on the Fed non rate hike and then a selloff afterwards in the coming days.  I would use any pop today towards S&P 2155 to 2160 to short.


MM111 said...

2173? Could this thing just rocket up to a new high?

Market Owl said...

Yes, anything is possible to the upside when the Fed refuses to act on its tough rate hike talk. Once again, all talk, no action. Market is very resilent, but I will short any touch of a new high before elections.

MM111 said...

Hopefully a little pullback and I'm out of my shorts.