April 10. A View from the Top (Yellen speaks this afternoon)

–Market attention is now focused on the Fed’s plans to curtail reinvestment.  Bullard this morning echoed Dudley and said the Fed “…could begin winding down its massive balance sheet sometime later this year in a shift that would make it less necessary to raise the official funds rate,” according to a story on Reuters.  We’ll get to hear directly from the top today as Yellen speaks at 4:10 ET.

–There are two good stories on Bloomberg dealing with this topic:



The first suggests that as foreign bonds emerge from the netherworld of negative yields, investors may me less inclined to park money in US treasuries.  The second talks about the potential for increased volatility, and mentions mortgage securities and the potential for both wider spreads and the need for private holders to hedge mortgage convexity. From the article: There’s also a chance that an increase in term premium triggers a withdrawal from risk assets such as equities… though “the risk asset link is not as certain,” according to Bank of America strategist Mark Cabana.

–I have been inclined to think that the risk asset linkage might be quite powerful; it’s not simply an increase in term premium that might cause a withdrawal from risk, it’s also a pullback in central bank largesse.  Previous ends of QE often had the perverse effect of bonds holding strong because equities faltered.

–Markets are quiet this morning though oil continues to retrace the sell off from March; CLK up 40 cents this morning to 52.64, having hit a low of 47.00 in March.  Three year auction today.  Yellen speaks late.

–There’s also an interesting article on ZH about the deceleration in C&I loan growth.  I have attached an image here from the St Louis Fed website.  However, given record corporate debt issuance I’m not so sure that this level of growth (associated with the last two recessions) is sending the same signal.

Posted on April 10, 2017 at 5:16 am by alexmanzara · Permalink
In: Eurodollar Options

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