Praying for Yield Curve Control
The yield on the 10-year US Treasury note declined 17 basis points to 4.51%. This was triggered by the US Fed declaring it would reduce the pace of quantitative tightening, implying less selling pressure on term bonds. Was this Powell giving in to pressure to reduce interest rates, without appearing to do so? And if so, was the sharp rally in the yen justified?
Let’s take these two issues in turn. First, yield curve control, or better described as a policy of suppressing bond yields along the curve. The reason for doing this is to make government funding cheaper, and to persuade pension funds and insurance companies that the Fed has interest rates under its control, making the purchase of long Treasuries less of a price risk.
The Fed definitely has an incentive to do this today. Government funding is soaring out of control, and there is increasing doubt in foreign investors’ minds that the US Government is already in a debt trap. Janet Yellen’s and her officials’ visits to China will have dispelled any doubts that this is the case. However, there is little evidence yet that domestic US institutions are of the same o
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