3 ms·

There has been so much fiddling with long term interest rates via QE (qualitative easing) that I am not sure how much you can look to the yield curve these days

There has been so much fiddling with long term interest rates via QE (qualitative easing) that I am not sure how much you can look to the yield curve these days to predict anything.

dnadler 8y ago
Quantitative easing ended quite a while ago in the US, and I would expect that the long end of the yield curve these days is a pretty good metric for the market's expectation of long-term rates. Whether the curve has ever had predictive power is another question entirely.
- danieltillett 8y ago
  I actually wrote quantitative easing - damn auto correct :) Even though QE ended awhile ago (in the USA at least), we don't really know the long term effect of it. I would be cautious using past correlations.
- maxerickson 8y ago
  Does QE end when they stop buying or does it end when they have normalized their balance sheet? They are nowhere close to doing the latter (~$5 trillion to go): https://fred.stlouisfed.org/series/TREAST https://fred.stlouisfed.org/series/TREAST https://fred.stlouisfed.org/series/MBST https://fred.stlouisfed.org/series/MBST Returning the balance sheet to historically normal levels marks the end of the increased market participation, so I think it's the better definition.
  - dnadler 8y ago
    That's a fair point, but I'd imagine one objective of normalization is to avoid moving the market in a substantial way, whereas the explicit goal of QE was to lower rates. I woudln't expect the Fed's participation in the market at would be meaningful, especially given the fact that they've only sold ~$100B in the past 10 or so months according to those charts. The treasury market is HUGE. (apparently > $500B ADV across all maturities)[1] [1] https://www.sifma.org/resources/research/us-treasury-trading-volume/ https://www.sifma.org/resources/research/us-treasury-trading...

3 ms·

There has been so much fiddling with long term interest rates via QE (qualitative easing) that I am not sure how much you can look to the yield curve these days

by danieltillett 8y ago

There has been so much fiddling with long term interest rates via QE (qualitative easing) that I am not sure how much you can look to the yield curve these days to predict anything.

dnadler 8y ago
Quantitative easing ended quite a while ago in the US, and I would expect that the long end of the yield curve these days is a pretty good metric for the market's expectation of long-term rates. Whether the curve has ever had predictive power is another question entirely.
- danieltillett 8y ago
  I actually wrote quantitative easing - damn auto correct :) Even though QE ended awhile ago (in the USA at least), we don't really know the long term effect of it. I would be cautious using past correlations.
- maxerickson 8y ago
  Does QE end when they stop buying or does it end when they have normalized their balance sheet? They are nowhere close to doing the latter (~$5 trillion to go): https://fred.stlouisfed.org/series/TREAST https://fred.stlouisfed.org/series/TREAST https://fred.stlouisfed.org/series/MBST https://fred.stlouisfed.org/series/MBST Returning the balance sheet to historically normal levels marks the end of the increased market participation, so I think it's the better definition.
  - dnadler 8y ago
    That's a fair point, but I'd imagine one objective of normalization is to avoid moving the market in a substantial way, whereas the explicit goal of QE was to lower rates. I woudln't expect the Fed's participation in the market at would be meaningful, especially given the fact that they've only sold ~$100B in the past 10 or so months according to those charts. The treasury market is HUGE. (apparently > $500B ADV across all maturities)[1] [1] https://www.sifma.org/resources/research/us-treasury-trading-volume/ https://www.sifma.org/resources/research/us-treasury-trading...