If this is accurate, it shows a Federal Reserve chairman who missed almost the entire disaster - is now misjudging how weak (and dependent on low rates) the US consumer is. "He knows nothing!" In my piece [May 1: 10 Year Bond Surges to 3.2%] I wrote
I am really surprised Bernanke did not bring out the bazooka earlier this week to keep rates suppressed. Mortgage rates at 5.5%-6.0% ruins this whole "consumer is back" story.
There is no way this is bullish unless you are a believer in the Goldilocks economy - just enough inflation to signal "a return to global growth" but not enough inflation to stagger the increasingly unemployed populace of the world, and US in particular.
Make no mistake folks - unless you are of belief the US is about to enter a V shaped recovery this a bearish situation for Main Street even if one thinks the abandonment of safety and return to risk is "bullish" from a Wall Street view.
Frankly I am shocked by this story, as it would appear would the "inside info" guys like PIMCO and Blackrock (BLK) - and it would be a green light to get back on the TLT short trade (or TBT long) [Apr 28: Bookkeeping - Covering Most of iShares Barclays 20+ Year Treasury Bond Ahead of Fed] I'm still mulling this story and its implications as I stroke my virtual chin... apparently the Fed is of the V shaped recovery thesis
Via Bloomberg
- The Federal Reserve considers the recent jump in Treasury yields more as a reflection of a better economic outlook than a signal it needs to step up purchases of U.S. government debt, according to central bank officials who declined to be identified.
- It’s too early to judge the effectiveness of the Fed’s $300 billion plan to buy Treasuries even after 10-year yields climbed 0.65 percentage point since the initiative began in March, the officials said. They added that the goal is to stimulate private lending, rather than to target government-bond rates. (I don't believe that latter comment for a moment, although you can twist it to say they are not targeting government bond rates but ARE targeting mortgage rates... I suppose. Hard to do one without the other!) The Fed has bought $101.7 billion under the initiative so far, part of its campaign to cut borrowing costs by purchasing assets with the benchmark interest rate near zero.
- Bernanke and other Fed officials have said they’re trying to lower mortgage rates and other private borrowing costs without aiming for any specific levels.
- The Fed officials’ stance contradicts the view of firms including BlackRock Inc. that have predicted the rise in yields will prompt the central bank to announce an increase in the size of the program as soon as next month. Stuart Spodek, BlackRock’s co-head of U.S. bonds in New York, said in an interview last week the Fed “needs to consider increasing its purchases of Treasuries” to “stabilize” long- term yields
- Should the rise in yields cause mortgage rates to surge, that may prove to be a trigger for a stronger Fed response, said Richard Clarida, a strategic adviser at Pacific Investment Management Co., the world’s biggest bond-fund manager. “That’s going to really, really, really hurt the economy,” Clarida said in a Bloomberg Television interview this week.
- The situation poses a “dilemma” for the Fed, because if the rise in yields reflects “erroneous market views” about the economy, it will hold back growth, said former Fed Governor Lyle Gramley. “The Fed is probably scratching its head at the moment and will wait and not react until the smoke clears,” said Gramley, who is now a senior economic adviser with New York-based Soleil Securities Corp.
Short iShares Barclays 20+ Year Treasury Bond in fund; no personal position
