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Nanex, 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 an

Nanex, 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 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.

kasey_junk 11y ago
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.
- theseatoms 11y ago
  In other words, the price of liquidity is much higher when impacting news (for any given security) is expected during market hours. To me this seems like a desired feature of properly functioning markets.
- vinceguidry 11y ago
  I'm home shopping at the moment, and my mortgage broker told me that he noticed a large hike in mortgage rates, is that due to this announcement and that I should wait a few weeks before locking in a rate?
  - eli 11y ago
    http://www.cnbc.com/2015/12/16/why-the-fed-move-doesnt-matter-to-mortgage-rates.html http://www.cnbc.com/2015/12/16/why-the-fed-move-doesnt-matte... Trying to time the market is tricky business.
- scarletham 11y ago
  Equities dry up as well. Pretty much everything dries up before FOMC announcements.
lintiness 11y ago
liquidity dries up in everything before big news announcements. resting bids and offers are asking to get picked off.
tedsanders 11y ago
(1) Liquidity always dries up prior to the announcements. If you're a market maker, you don't want to get run over by someone moving the price on new information. (2) It's a myth that raising rates will give the Fed more ammunition. That's like saying you should exercise less now so that if you gain weight in the future you'll be able to make a bigger change in the amount you exercise. (Not the perfect analogy, but I hope you get the idea.) The fallacy comes from thinking that the change in interest rates is what stimulates the economy, not the interest itself. A second issue with raising rates to 'increase ammunition' is that if you choose a rate path that is too high, you'll depress economic growth, pushing rates down, counteracting your goal of higher rates. Monetary economist Scott Sumner writes: "Fed funds target rate increases tend to reduce the Wicksellian equilibrium interest rate, and hence give them less ammunition for the future. The ECB in 2011 is now the classic example, but you can cite Sweden, or Japan (2000 and 2006) or the US (1937) as well." Here's a neutral-point-of-view blog post that discusses whether it makes sense to think about rate hikes as 'adding ammunition': http://johnhcochrane.blogspot.com/2015/05/small-shoes-and-headroom.html http://johnhcochrane.blogspot.com/2015/05/small-shoes-and-he... And here's a blog post that argues that while rate hikes might not give you monetary ammunition, they still might give you reputational ammunition: http://www.themoneyillusion.com/?p=31361 http://www.themoneyillusion.com/?p=31361
- chollida1 11y ago
  I agree with your first point. Most people don't follow the markets so I thought it might be interesting to them. As to your second point, we will have to agree to disagree. You might be right, I'm not a macro economist, but your opinion is a minority one and its definitely not the mainstream opinion. Which is fine, it might be right, but I'd rather have the fed have room to cut rates than not have that option on the table.
  - jbooth 11y ago
    Worth noting that the mainstream macroeconomic wisdom has been completely disconnected from what we've observed in reality the past 10 years or so -- having rates this low for this long is supposed to spur demand and create inflation, according to mainstream macro, right?

kasey_junk 11y ago

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.

theseatoms 11y ago
In other words, the price of liquidity is much higher when impacting news (for any given security) is expected during market hours. To me this seems like a desired feature of properly functioning markets.
vinceguidry 11y ago
I'm home shopping at the moment, and my mortgage broker told me that he noticed a large hike in mortgage rates, is that due to this announcement and that I should wait a few weeks before locking in a rate?
- eli 11y ago
  http://www.cnbc.com/2015/12/16/why-the-fed-move-doesnt-matter-to-mortgage-rates.html http://www.cnbc.com/2015/12/16/why-the-fed-move-doesnt-matte... Trying to time the market is tricky business.
scarletham 11y ago
Equities dry up as well. Pretty much everything dries up before FOMC announcements.

lintiness 11y ago

liquidity dries up in everything before big news announcements. resting bids and offers are asking to get picked off.

tedsanders 11y ago

(1) Liquidity always dries up prior to the announcements. If you're a market maker, you don't want to get run over by someone moving the price on new information. (2) It's a myth that raising rates will give the Fed more ammunition. That's like saying you should exercise less now so that if you gain weight in the future you'll be able to make a bigger change in the amount you exercise. (Not the perfect analogy, but I hope you get the idea.) The fallacy comes from thinking that the change in interest rates is what stimulates the economy, not the interest itself. A second issue with raising rates to 'increase ammunition' is that if you choose a rate path that is too high, you'll depress economic growth, pushing rates down, counteracting your goal of higher rates. Monetary economist Scott Sumner writes: "Fed funds target rate increases tend to reduce the Wicksellian equilibrium interest rate, and hence give them less ammunition for the future. The ECB in 2011 is now the classic example, but you can cite Sweden, or Japan (2000 and 2006) or the US (1937) as well." Here's a neutral-point-of-view blog post that discusses whether it makes sense to think about rate hikes as 'adding ammunition': http://johnhcochrane.blogspot.com/2015/05/small-shoes-and-headroom.html http://johnhcochrane.blogspot.com/2015/05/small-shoes-and-he... And here's a blog post that argues that while rate hikes might not give you monetary ammunition, they still might give you reputational ammunition: http://www.themoneyillusion.com/?p=31361 http://www.themoneyillusion.com/?p=31361

chollida1 11y ago
I agree with your first point. Most people don't follow the markets so I thought it might be interesting to them. As to your second point, we will have to agree to disagree. You might be right, I'm not a macro economist, but your opinion is a minority one and its definitely not the mainstream opinion. Which is fine, it might be right, but I'd rather have the fed have room to cut rates than not have that option on the table.
- jbooth 11y ago
  Worth noting that the mainstream macroeconomic wisdom has been completely disconnected from what we've observed in reality the past 10 years or so -- having rates this low for this long is supposed to spur demand and create inflation, according to mainstream macro, right?