Contributor: Stephen J. Douglass
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Global Bond Yields Plunge to Record Lows
Bond yields have fallen dramatically around the world this month, driven by the latest escalation of the trade war as well as signals that aggressive monetary stimulus will be forthcoming from central banks. Longer-tenor government bond yields in the US and Europe have fallen by 30-60 basis points this month, reaching record lows for many…
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The Waiting is the Hardest Part: An Update on the LIBOR Transition
The LIBOR transition continues. As we have outlined in previous notes, we are six years into a global effort to replace LIBOR with more robust reference rates. Though progress has been made, we can’t say at this point whether the transition will be successfully completed before the end of 2021, the deadline after which UK…
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Market Bids Farewell to the Fed’s Tightening Cycle
The last seven weeks have seen a dramatic repricing of the expected path of monetary policy. As recently as November 8, the fed funds futures market was pricing the Fed to hike all the way to 3%. Since then, more than two hikes have been removed from the expected path of policy. The fed funds…
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SOFR, So Good
The LIBOR transition continues. A global effort has been underway since 2013 to reduce dependency on LIBOR, the benchmark interest rate discredited by a series of manipulation scandals and long criticized for reflecting bankers’ estimates of their borrowing costs rather than actual transactions. US dollar LIBOR has grown since the 1980s to underpin $200 trillion…
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China, the Goliath of the Treasury Market
After the latest round of the trade war, China has imposed tariffs on nearly all of the $130 billion in annual goods imports from the U.S. Though China could increase the tariff rate, they have effectively spent all their ammunition in terms of the scope of tariff application. As China-watchers have speculated as to what…
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Fed’s Technical Adjustment to IOER is a Sign of Things to Come
It was a surprise to no one when the Federal Reserve hiked rates this past Wednesday. The purpose of this note is to describe the “small technical adjustment” the Fed announced it would make to its operating framework for managing overnight interest rates. Since the financial crisis, the Fed has set the policy rate as…
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The Phillips Curve is Dead, Long Live the Phillips Curve!
The Phillips Curve describes the relationship between unemployment and inflation. First proposed in 1958, the theory holds that a low unemployment rate reflects a tight labor market that requires firms to raise wages to attract scarce labor. The Phillips Curve is therefore supposed to be downward sloping. Economists have since extended the model in a…
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Fed Takes First Step of $2 Trillion Journey
The Federal Reserve took the first step this week of what will be a long journey towards normalizing its balance sheet after buying nearly $4 trillion in securities from 2008 through 2014. The Fed had $8.7 billion in Treasury securities that matured on October 31. When those bonds matured, $2.7 billion was reinvested back into…
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Go Long!
The Treasury Department is considering issuing an ultra-long bond with a maturity greater than 30 years. The idea was first raised in post-election interviews with then-nominee for Treasury Secretary Steven Mnuchin and formalized last month when Treasury requested a response on the subject from primary dealers and the Treasury Borrowing Advisory Committee (TBAC). Both of…