Custom Search

Thursday, January 31, 2008

Fed Cuts and Rates Rise: Bond Vigilantes

Ben 'Helicopter' Bernanke cut and he cut hard... the Bond Vigilantes came and and raised rates on everything along the curve.

The curve steepened as intended, and this will eventually help the banks. However, if yields continue to rise are simply ignore further cuts, then the strapped consumers won't see the benefits of a lower Fed funds rate. Looks like mortgage rates won't be coming down as intended...

U.S. Initial Jobless Claims Rose to 375,000 Last Week (Update1) : "The number of Americans filing first-time claims for unemployment benefits rose more than forecast last week to a 27-month high, evidence of a weakening job market.

Initial jobless claims increased by 69,000 to 375,000 in the week ended Jan. 26, the Labor Department said today in Washington. The increase in claims was the biggest since just after Hurricane Katrina in September 2005. A separate report from Labor showed employment costs rose 0.8 percent in the fourth quarter of 2007, the same as in the prior three months."

That was a little bit of a surprise as well. S&P went from 1344 to 1331 on the news this morning. Looks like the begining of an ugly day.

"Last week's figures were distorted by difficulties adjusting for the Martin Luther King holiday, when state unemployment offices were closed, a Labor Department spokesman said. Total benefit rolls have been moving steadily higher since September, signaling a slowing job market and raising the odds the economy may be on the verge of a recession, economists say."

Looks like traders are taking the 'seasonality' arguement at face value.


Anonymous said...

Good stuff, recently found your blog. Not a conspiracy theorist, but I don't think "lower" mortgage rates was the purpose of the 225 basis point cut we've seen since September. It's to, as you say, allow the banks to borrow from us at low rates, and lend to us at higher rates. Some might call it financial fleecing, profiteering, etc.

Anonymous said...

The flight out of bonds makes sense to me. Why would money stay parked in an asset that has a negative yield?

Inflation at 4%, treasury yields at 2% to 3.6%. No thanks. What ever happened to return of capital?

Bernanke has made it clear to all:

Safety will not pay your bills. You WILL take more risk or we WILL take your money and do it for you.

Now that's Central Banking!