Finally! In 2-3 years bonds will actually yield something.
But existing bond investments will lose value because of selloffs :-(
Fed Ends Zero-Rate Era
11–20 of 361 posts
Re: Fed Ends Zero-Rate Era
#12Hi HN, can someone please explain what are the implications here for the average-Joe?
Re: Fed Ends Zero-Rate Era
#13It will also be interesting to see how much of the FED Assets [1] will need to be sold directly or indirectly in open market action to get to their target rate. [1] http://www.federalreserve.gov/releases/h41/Current/
In the full text of their announcement, they said they will not be selling any for the time being. They will continue to reinvest the principal as well. They will be using other mechanisms to achieve their target.
I believe it is reverse repos [1] they are referring to.
"When the Desk conducts an overnight RRP, as in the current ON RRP exercise, it is selling an asset held in the System Open Market Account (SOMA) with an agreement to buy it back on the next business day. This leaves the SOMA portfolio the same size, as securities sold temporarily under repurchase agreements continue to be shown as assets held by the SOMA in accordance with generally accepted accounting principles, but the transaction changes some of the liabilities on the Federal Reserve’s balance sheet from deposits to reverse repos while the trade is outstanding."
Re: Fed Ends Zero-Rate Era
#14Hi HN, can someone please explain what are the implications here for the average-Joe?
Money becomes more expensive to borrow.
Re: Fed Ends Zero-Rate Era
#15Nanex, an account that follow market micro-structure, had an interesting tweet that showed how the liquidity on 10 year Treasuries just dried up prior to the announcement.
https://twitter.com/nanexllc/status/677202959030083584
I'm surprised this story has gotten so many votes so fast. This rate hike was widely predicted, as intentionally as the fed could by law so that they don't impact the markets too much.
Alot of people think this is the first of a few small rate hikes we'll see in the next 12 months.
IMHO, this is good news for the US economy,
- it will help give the the fed some wiggle room/ammunition to soften the fall when the next recession hits
- a slowly raising rate could stimulate the economy by convincing companies to spend now on large projects rather than wait, ditto for housing/consumers
Having said all that, keep in mind the rate hike is only 0.25% upping the overnight rate to 0.3% so this is likely to have an almost negligible impact on the every day consumer.
Re: Fed Ends Zero-Rate Era
#16Hi HN, can someone please explain what are the implications here for the average-Joe?
My personal economist-on-twitter of choice to tune into around fed and other news is Justin Wolfers[1]. Your mileage may vary, but he's certainly willing to express an opinion in what I consider a pretty clear manner (not to say he isn't opinionated, I just find his prognostications and commentary generally compelling).
Re: Fed Ends Zero-Rate Era
#17This could have wide implications for the startup community. A lot of people think that the current really high late-stage startup valuations, and the money pouring into the seed stage is an effect of the low interest rates. With no way to get any decent yields with these rates; it incentivizes institutional money to chase returns in alternative investment classes.
Re: Fed Ends Zero-Rate Era
#18Would this end up being the pivotal moment of this decade? There is already speculation of recession in the 12-18 month time frame[0] and the energy sector [1] is going downhill since April. I'm seeing some cities and suburbs expanding unlike anything in a while but how much of that could be sustained?
To word it differently, did the Fed blink or are the underlying indicators where they want it to be?
[0] Given the cyclic nature of recessions, we seem to have artificially delayed it a bit.
[1] https://www.google.com/finance?catid=us-TRBC%3A50&ei=jLpxVtG...
Re: Fed Ends Zero-Rate Era
#19Nanex, an account that follow market micro-structure, had an interesting tweet that showed how the liquidity on 10 year Treasuries just dried up prior to the announcement. https://twitter.com/nanexllc/status/677202959030083584 I'm surprised this story has gotten so many votes so fast. This rate hike was widely predicted, as intentionally as the fed could by law so that they don't impact the markets too much. Alot of…
Treasuries always dry up in front of fed announcements. It's marked on the calendar like job numbers and other macro items that can cause wild swings.
Its much cheaper to just not trade during those times than it is to build out the models/risk management components for most market makers.
Re: Fed Ends Zero-Rate Era
#20Nanex, an account that follow market micro-structure, had an interesting tweet that showed how the liquidity on 10 year Treasuries just dried up prior to the announcement. https://twitter.com/nanexllc/status/677202959030083584 I'm surprised this story has gotten so many votes so fast. This rate hike was widely predicted, as intentionally as the fed could by law so that they don't impact the markets too much. Alot of…
liquidity dries up in everything before big news announcements. resting bids and offers are asking to get picked off.