What Happens When the Fed FINALLY Reduces Its $4.5 Trillion Balance Sheet?
From the Insights column of our Interest Rates Pro Service

By Elliott Wave International

So, there we have it. Deflation has started.

The Federal Reserve announced last month that they would start to reduce their $4.5 trillion balance sheet in October, thereby starting the process we call Quantitative Tightening (QT). As expected, they are aiming to do it gently and quietly, by not reinvesting bonds as they mature, starting with sums of around $6 billion of Treasuries and $4 billion in Mortgage-Backed Securities (MBS). The scale of non-reinvestment will gradually increase. Once in full swing, the Fed's balance sheet could reduce by up to $150 billion each quarter.

Conventional analysis might conclude that the Fed's balance sheet reduction (deflation) would be bad for US Treasuries and MBS -- after all, those are the instruments not now being bought by the Fed. Notwithstanding the fact that we dismiss that sort of causality thinking anyway, we're not conventional analysts, and take a different angle.

As the Insights column of our Interest Rates Pro Service alluded to last month, the Fed's QE program has crowded out investors in the US Treasury space. The market supply of US Treasuries was reduced by the Fed's program and so it forced bond investors to buy other instruments, such as corporate bonds. Now that more US Treasuries are going to be available for investment, those funds may be tempted to switch the corporate bonds they hold back into ("safer") US Treasuries. The unintended consequence of QT, therefore, may well turn out to be a widening in corporate bond yield spreads.

So, what to look for? Our Bond Market Monitor tracks corporate bond spreads on a daily basis, so the first sign of stress can be seen there. We will be keeping an especially close eye on the trend of the Bloomberg Barclays Global Aggregate Credit index yield spread because, as our chart below shows, it may have found solid support at the old 2014 low.

Credit Index

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This article was syndicated by Elliott Wave International and was originally published under the headline What Happens When the Fed FINALLY Reduces Its $4.5 Trillion Balance Sheet?. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Here's Why the Time to Worry About the "Fear Index" is NOW, Not Later

By Elliott Wave International

 

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This article was syndicated by Elliott Wave International and was originally published under the headline Here's Why the Time to Worry About the "Fear Index" is NOW, Not Later. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Believe Your Own Eyes: Central Banks FOLLOW the Market

By Elliott Wave International

 

3 Videos + 8 Charts = Opportunities You Need to See.

Join this free event hosted by Elliott Wave International and you'll get a clear picture of what's next in a variety of U.S. markets. After seeing these videos and charts you will be ready to jump on opportunities and sidestep risks in some major markets. This free report (a $29 value) will present a unique outlook and give you a new perspective on the markets you won't get anywhere else.

Get your FREE report now – for a limited time >>

This article was syndicated by Elliott Wave International and was originally published under the headline Believe Your Own Eyes: Central Banks FOLLOW the Market. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

vendredi 13 octobre 2017

What Happens When the Fed FINALLY Reduces Its $4.5 Trillion Balance Sheet?

 By Editorial Staff
Tue, 10 Oct 2017 15:00:00 ET


So, there we have it. Deflation has started.
The Federal Reserve announced last month that they would start to reduce their $4.5 trillion balance sheet in October, thereby starting the process we call Quantitative Tightening (QT). As expected, they are aiming to do it gently and quietly, by not reinvesting bonds as they mature, starting with sums of around $6 billion of Treasuries and $4 billion in Mortgage-Backed Securities (MBS). The scale of non-reinvestment will gradually increase. Once in full swing, the Fed's balance sheet could reduce by up to $150 billion each quarter.


mercredi 20 septembre 2017

FED

America's central bank announced it would begin to taper the size of its balance sheet next month while keeping the target for its main policy interest rate unchanged at between 1.0% and 1.25%.

GOLD

https://gannsecret.blogspot.fr/

vendredi 15 septembre 2017

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