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I couldn’t repair your brakes, so I made your horn louder

first_imgThis has been a pretty rough June so far. I think it is safe to say that we breached the limits of positive monetary policy effectiveness about two years ago. Now, we are in a world where the major central banks are doing well if they just make a lot of noise without actually doing things that harm the global financial system—like Negative Interest Rate Policy (NIRP) and new iterations of Quantitative Easing (QE). In last week’s post, I spoke about my jaw dropping upon seeing the 10-year German Bund fall to a yield of three basis points. This week that yield is now negative 2.5 basis points. The Japanese 10-year government bond currently yields negative 20 basis points. Can you even use the word yield if it is negative? Maybe it should be called “the take” or something like that.It was a pretty humbling beginning of the month for the Federal Reserve (the Fed). After some influential reserve bank presidents spoke of monetary shock and awe at the end of May, the Fed had to take a few steps back when the May employment figures came out shockingly weak on June 3. The weak employment report led to what was widely viewed as a very “dovish” Federal Open Market Committee (FOMC) statement on June 15. The Fed was forced to backtrack on their labor market optimism when they said, “The pace of improvement in the labor market has slowed. Although the employment rate has declined, job gains have diminished.”You could have heard a pin drop after that statement if it were not for the screaming of traders trying to buy anything that resembled a Treasury note or bond! Traders promptly took all FOMC tightening out for 2016 and essentially pushed them out well into 2017. The five-year Treasury note got as low as 1.06%, which implies a Federal Reserve on hold until sometime in 2020! This Thursday, the 10-year Treasury note dropped as low as 1.51%. continue reading » 3SHARESShareShareSharePrintMailGooglePinterestDiggRedditStumbleuponDeliciousBufferTumblrlast_img

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