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SGH Macro Advisors provides macro-policy research to the world’s most influential hedge funds, money managers, and financial policymakers. We produce well-informed, cutting edge reports and briefings on the major central bank, fiscal and political events driving the global economies and financial markets.
Over the years we have built a reputation as a trusted, highly valued source of un-biased, un-conflicted information and insight to the policymaking and investment communities, one that is materially differentiated from street research, the press, and think tanks.
Highlights
SGH reports are highly valued for keeping clients and policymakers informed and well-ahead of consensus and the news cycle on the macro policy events driving global markets.
February 22, 2021
SGH Insight
Fed Watch Bottom Line
The Fed remains unconcerned by rising long yields. In a sense, such increases driven by an improving economic outlook are welcome. The Fed would be more concerned if market pricing for a rate hike moved into 2022. Policy makers would have a hard time seeing that as consistent with their signaling and the current data flow. Remember, while they are very much paying attention to the totality of the data, policy makers are primarily looking at employment and inflation moving substantially closer to their objectives before they strongly signal a more imminent change in policy.
Market Validation
The Fed remains unconcerned by rising long yields. In a sense, such increases driven by an improving economic outlook are welcome. The Fed would be more concerned if market pricing for a rate hike moved into 2022. Policy makers would have a hard time seeing that as consistent with their signaling and the current data flow. Remember, while they are very much paying attention to the totality of the data, policy makers are primarily looking at employment and inflation moving substantially closer to their objectives before they strongly signal a more imminent change in policy.
Policy Validation
(Bloomberg 2/23/21)
*POWELL: RATES ARE MOVING UP DUE TO HIGHER GROWTH EXPECTATIONS
*POWELL: LOOK AT BROAD RANGE OF CONDITIONS, INCLUDING YIELDS
*POWELL: MOVE IN YIELDS REFLECTS MORE CONFIDENCE IN THE ECONOMY
*POWELL: EXPECT US TO MOVE CAREFULLY AND PATIENTLY OVER TIME
*POWELL: THERE'S LONG WAY TO GO, WE'RE 10M JOBS BELOW PRE-VIRUS
(Bloomberg 2/23/21)
*POWELL: RATES ARE MOVING UP DUE TO HIGHER GROWTH EXPECTATIONS
*POWELL: LOOK AT BROAD RANGE OF CONDITIONS, INCLUDING YIELDS
*POWELL: MOVE IN YIELDS REFLECTS MORE CONFIDENCE IN THE ECONOMY
*POWELL: EXPECT US TO MOVE CAREFULLY AND PATIENTLY OVER TIME
*POWELL: THERE'S LONG WAY TO GO, WE'RE 10M JOBS BELOW PRE-VIRUS
February 22, 2021
SGH Insight
** We expect Chairman Powell and his FOMC colleagues to stick close to the script since the January FOMC meeting: the recovery, though definitely promising, is still far from certain much less the labor market gains being widely shared, and a still subdued, inertial inflation is the greater near risk than “temporary” upward price pressures; that translates into a full throated support for an aggressive fiscal policy and for the Fed’s own optimal rates and balance sheet policy to firmly remain on a highly accommodative path.
Market Validation
Policy Validation
Bloomberg 2/23/21
Powell Signals Continued Fed Aid for Economy He Sees Improving
By Rich Miller
Federal Reserve Chairman Jerome Powell signaled that the central bank was nowhere close to pulling back on its support for the pandemic-damaged U.S. economy even as he voiced expectations for a return to more normal, improved activity later this year.
“The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved,” he said in the text of testimony to be delivered Tuesday to the Senate Banking Committee.
Bloomberg 2/23/21
Powell Signals Continued Fed Aid for Economy He Sees Improving
By Rich Miller
Federal Reserve Chairman Jerome Powell signaled that the central bank was nowhere close to pulling back on its support for the pandemic-damaged U.S. economy even as he voiced expectations for a return to more normal, improved activity later this year.
“The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved,” he said in the text of testimony to be delivered Tuesday to the Senate Banking Committee.
February 4, 2021
SGH Insight
The full-year rare earth mining quota for 2021 has been set at 140,000 tons, the same as in 2020. Officials expect the actual (as opposed to target) production of rare earths to come in slightly below that, at 130,000 tons. For reference, the rare earth mining quota for 2019 was set at 132,000 tons, and for 2018 it was 120,000.
China will also continue to tightly control the export of other strategic and scarce materials for 2021. Natural graphite, tungsten, magnesium, and manganese export quotas will remain unchanged from 2020, already down over 40% year on year from 2019, and from previous year, levels.
Market Validation
China will also continue to tightly control the export of other strategic and scarce materials for 2021. Natural graphite, tungsten, magnesium, and manganese export quotas will remain unchanged from 2020, already down over 40% year on year from 2019, and from previous year, levels.
(Bloomberg 2/16/21)
China is exploring whether it can hurt U.S. defense contractors by limiting supplies of rare-earth minerals that are critical to the industry, the Financial Times reported. Industry executives said government officials had asked them how badly companies in the U.S. and Europe would be affected if China restricted rare-earth exports during a bilateral dispute, the FT reported, citing people it didn’t identify involved in the consultation.
China is exploring whether it can hurt U.S. defense contractors by limiting supplies of rare-earth minerals that are critical to the industry, the Financial Times reported. Industry executives said government officials had asked them how badly companies in the U.S. and Europe would be affected if China restricted rare-earth exports during a bilateral dispute, the FT reported, citing people it didn’t identify involved in the consultation.
February 10, 2021
SGH Insight
G7 Finance Ministers and Central Bank Governors will meet virtually on Friday, February 12, under the chairmanship now of the UK, which just took over its rotating presidency for 2021.
** According to various sources, senior G7 financial policymakers expect to discuss enhanced coordination of fiscal stimulus in response to the Covid-19 pandemic – who does what and for how long – and to reaffirm their commitment to supporting their respective economies and to averting a situation in which a premature or unexpected withdrawal of fiscal stimulus, especially in one of the major economies, could hurt the others.
** There is also likely to be discussion on Friday of boosting the International Monetary Fund’s war chest by an additional 500 billion Special Drawing Rights (SDRs), as proposed by IMF Managing Director Kristalina Georgieva last year, or, more controversially, by an even larger amount – as high as the 1-2 trillion SDRs that has been suggested for example by former US Treasury Secretary Larry Summers. The purpose of these additional lines would be to help the IMF assist smaller countries around the world with additional financing needs arising from the pandemic.
Market Validation
** According to various sources, senior G7 financial policymakers expect to discuss enhanced coordination of fiscal stimulus in response to the Covid-19 pandemic – who does what and for how long – and to reaffirm their commitment to supporting their respective economies and to averting a situation in which a premature or unexpected withdrawal of fiscal stimulus, especially in one of the major economies, could hurt the others.
** There is also likely to be discussion on Friday of boosting the International Monetary Fund’s war chest by an additional 500 billion Special Drawing Rights (SDRs), as proposed by IMF Managing Director Kristalina Georgieva last year, or, more controversially, by an even larger amount – as high as the 1-2 trillion SDRs that has been suggested for example by former US Treasury Secretary Larry Summers. The purpose of these additional lines would be to help the IMF assist smaller countries around the world with additional financing needs arising from the pandemic.
Policy Validation
(Reuters 2/12/21)
ROME — Finance ministers from the Group of Seven (G7) rich nations have committed to continuing coordinated action to support the economy, Italian Economy Minister Roberto Gualtieri said on Friday.
“G7 ministers confirmed today their common and coordinated commitment to support the recovery and to set the conditions for a sustainable and inclusive growth. The withdrawal of policy support is premature,” he wrote on Twitter after an online call with his G7 peers.
(National Post 2/12/21)
Japan's Aso: G7 finmins discussed support for low-income countries
Financial leaders from the Group of Seven (G7) rich nations discussed support for low-income countries and new allocation of special drawing rights at the International Monetary Fund (IMF) in a virtual meeting, Japanese Finance Minister Taro Aso said on Friday.
Aso was speaking to reporters after attending Friday's online meeting with his G7 peers under the United Kingdom as new chair.
(Bloomberg 2/12/21)
In her first call with foreign counterparts and central bankers from the G-7, Yellen said that “the time to go big is now” and that the group should focus on how to help the economy, the U.S. Treasury Department said in a statement after the virtual meeting held on Friday. The U.K. is the rotating head of the G-7 this year.
The U.S. is leaning toward backing an increase in the IMF’s special drawing rights by as much as $500 billion, Bloomberg News reported earlier this month. The fund has been lobbying for more help to support developing nations against the Covid-19 crisis. A decision could come as soon as this month.
(Reuters 2/12/21)
ROME — Finance ministers from the Group of Seven (G7) rich nations have committed to continuing coordinated action to support the economy, Italian Economy Minister Roberto Gualtieri said on Friday.
“G7 ministers confirmed today their common and coordinated commitment to support the recovery and to set the conditions for a sustainable and inclusive growth. The withdrawal of policy support is premature,” he wrote on Twitter after an online call with his G7 peers.
(National Post 2/12/21)
Japan's Aso: G7 finmins discussed support for low-income countries
Financial leaders from the Group of Seven (G7) rich nations discussed support for low-income countries and new allocation of special drawing rights at the International Monetary Fund (IMF) in a virtual meeting, Japanese Finance Minister Taro Aso said on Friday.
Aso was speaking to reporters after attending Friday's online meeting with his G7 peers under the United Kingdom as new chair.
(Bloomberg 2/12/21)
In her first call with foreign counterparts and central bankers from the G-7, Yellen said that “the time to go big is now” and that the group should focus on how to help the economy, the U.S. Treasury Department said in a statement after the virtual meeting held on Friday. The U.K. is the rotating head of the G-7 this year.
The U.S. is leaning toward backing an increase in the IMF’s special drawing rights by as much as $500 billion, Bloomberg News reported earlier this month. The fund has been lobbying for more help to support developing nations against the Covid-19 crisis. A decision could come as soon as this month.
February 9, 2021
SGH Insight
There is a shared “eyes on the prize” between the Fed and Treasury to foster a high-pressure economy through an amply accommodative monetary policy underpinning an aggressive fiscal policy. We expect Chairman Powell will keep a newly unified Fed messaging firmly on a distant outcomes-based policy path through any stronger than expected near term growth. That means the Fed will “look through” an expected pop in measured inflation this spring or a continued rise in inflation expectations, and will push back against hawkish market pricing doubting the central bank’s current balance sheet and rates policy stance.
Market Validation
Policy Validation
FT 2/10/21
Jay Powell stressed the importance of “patiently accommodative” monetary policy to support the struggling US labour market, warning that achieving full employment in the world’s largest economy will not be easy. In prepared remarks to the Economic Club of New York on Wednesday, the chair of the Federal Reserve said US employment was far from its pre-pandemic level. He did not reveal any anxiety about a rise in inflation later this year triggered by President Joe Biden’s $1.9tn fiscal stimulus plan. “Despite the surprising speed of recovery early on, we are still very far from a strong labour market whose benefits are broadly shared,” Powell said. “Employment in January of this year was nearly 10m below its February 2020 level, a greater shortfall than the worst of the Great Recession’s aftermath.” Powell also indicated that US policymakers, including health officials, fiscal authorities and central bankers, would still have plenty of work to do in order to close that gap, suggesting the Fed did not see a quick end in sight to the economic downturn triggered by the pandemic.
FT 2/10/21
Jay Powell stressed the importance of “patiently accommodative” monetary policy to support the struggling US labour market, warning that achieving full employment in the world’s largest economy will not be easy. In prepared remarks to the Economic Club of New York on Wednesday, the chair of the Federal Reserve said US employment was far from its pre-pandemic level. He did not reveal any anxiety about a rise in inflation later this year triggered by President Joe Biden’s $1.9tn fiscal stimulus plan. “Despite the surprising speed of recovery early on, we are still very far from a strong labour market whose benefits are broadly shared,” Powell said. “Employment in January of this year was nearly 10m below its February 2020 level, a greater shortfall than the worst of the Great Recession’s aftermath.” Powell also indicated that US policymakers, including health officials, fiscal authorities and central bankers, would still have plenty of work to do in order to close that gap, suggesting the Fed did not see a quick end in sight to the economic downturn triggered by the pandemic.
February 8, 2021
SGH Insight
Tim Duy Fed Watch:
Bottom Line
Monetary policy will be held steady until the data suggests otherwise. Fed speakers should continue to reinforce the Fed’s updated policy strategy. Remember that the Fed is erring on the side of overshooting.
Market Validation
Bottom Line
Monetary policy will be held steady until the data suggests otherwise. Fed speakers should continue to reinforce the Fed’s updated policy strategy. Remember that the Fed is erring on the side of overshooting.
Policy Validation
(Dow Jones 2/11/21)
Fed's Daly Sees Central Bank Maintaining Its Bond-Buying Pace Through 2021
Federal Reserve Bank of San Francisco leader Mary Daly said the U.S. central bank is unlikely to pull back on its bond-buying stimulus this year, and that another round of government aid shouldn't overheat the economy.
The official said she continues to expect the U.S. economy to pick up speed over the second half of the year, as vaccinations roll out and allow the economy to emerge from the shadows of the coronavirus pandemic. But even as the nation emerges from the crisis, it won't yet be time for the central bank to pull back on its $120 billion a month in bond buying, she told The Wall Street Journal on Wednesday.
"For now, we have policy in a good place," Ms. Daly said. "If you take the lens of my modal outlook, then it's really continuing to purchase at the current pace through the end of this year."
(Dow Jones 2/11/21)
Fed's Daly Sees Central Bank Maintaining Its Bond-Buying Pace Through 2021
Federal Reserve Bank of San Francisco leader Mary Daly said the U.S. central bank is unlikely to pull back on its bond-buying stimulus this year, and that another round of government aid shouldn't overheat the economy.
The official said she continues to expect the U.S. economy to pick up speed over the second half of the year, as vaccinations roll out and allow the economy to emerge from the shadows of the coronavirus pandemic. But even as the nation emerges from the crisis, it won't yet be time for the central bank to pull back on its $120 billion a month in bond buying, she told The Wall Street Journal on Wednesday.
"For now, we have policy in a good place," Ms. Daly said. "If you take the lens of my modal outlook, then it's really continuing to purchase at the current pace through the end of this year."
February 4, 2021
SGH Insight
Tim Duy Fed Watch
That phrasing “look for leadership from the chair” is something to think about. It sounds like Powell is taking on a very Greenspan-esque, top-down management role as if he will tell the presidents when it is time to talk about tapering. This could be very important in setting up a discontinuous break in communications. As I said earlier this week, we should be anticipating the change in policy before the Fed talks about that change. If Powell is taking charge, we may get few little rumblings before that change. It will all be deny, deny, deny followed by a big announcement. The data should already be bringing us to that point if the Fed is communicating the meaning of “substantial progress” so it shouldn’t be too jarring, but it is clearly something to be watching.
Market Validation
That phrasing “look for leadership from the chair” is something to think about. It sounds like Powell is taking on a very Greenspan-esque, top-down management role as if he will tell the presidents when it is time to talk about tapering. This could be very important in setting up a discontinuous break in communications. As I said earlier this week, we should be anticipating the change in policy before the Fed talks about that change. If Powell is taking charge, we may get few little rumblings before that change. It will all be deny, deny, deny followed by a big announcement. The data should already be bringing us to that point if the Fed is communicating the meaning of “substantial progress” so it shouldn’t be too jarring, but it is clearly something to be watching.
Policy Validation
“The committee has said we are going to wait for further progress on our goals. I gave a rosy outlook today but it’s only an outlook. I would definitely want to see whether this materializes or not before getting into any adjustments to policy”
“The chair has wanted to start that conversation only when it’s appropriate and not get ahead of ourselves even though we do have high hopes the pandemic will come to an end”
Bullard speaks with reporters Thursday after giving presentation on the economic outlook
“The committee has said we are going to wait for further progress on our goals. I gave a rosy outlook today but it’s only an outlook. I would definitely want to see whether this materializes or not before getting into any adjustments to policy”
“The chair has wanted to start that conversation only when it’s appropriate and not get ahead of ourselves even though we do have high hopes the pandemic will come to an end”
Bullard speaks with reporters Thursday after giving presentation on the economic outlook
December 6, 2020
SGH Insight
Tim Duy's Fed Watch:
Bottom Line: I don’t have some secret source that is telling me what is going to happen next week and I understand the inclination to think more easing is coming but I really don’t like predicting something that is the exact opposite what multiple Fed speakers are saying. It seems to me that the Fed is telling us they are going after the low-hanging fruit of putting some guidance on the asset purchase program at this next meeting. The Fed did discuss in November potential changes such as the duration mix or the size of asset purchase but this discussion regarded policy beyond the current surge of Covid-19 cases. With financial conditions currently easy and the Fed literally unable to impact near-term economic outcomes, there doesn’t seem any reason to change policy next week. Of course, an unexpected tightening of financial conditions would be something that the Fed could address should that occur between now and the meeting.
Market Validation
Bottom Line: I don’t have some secret source that is telling me what is going to happen next week and I understand the inclination to think more easing is coming but I really don’t like predicting something that is the exact opposite what multiple Fed speakers are saying. It seems to me that the Fed is telling us they are going after the low-hanging fruit of putting some guidance on the asset purchase program at this next meeting. The Fed did discuss in November potential changes such as the duration mix or the size of asset purchase but this discussion regarded policy beyond the current surge of Covid-19 cases. With financial conditions currently easy and the Fed literally unable to impact near-term economic outcomes, there doesn’t seem any reason to change policy next week. Of course, an unexpected tightening of financial conditions would be something that the Fed could address should that occur between now and the meeting.
(CNBC 12/16/20)
The Federal Reserve on Wednesday made a key adjustment to its efforts to support the economy, while upgrading its outlook for growth.
As expected, the Fed held benchmark interest rates near zero following the conclusion of its two-day meeting.
Investors were watching whether the Fed would present outcomes-based guidance in which it would state the conditions necessary for a reversal in policy.
The Fed delivered in that respect, saying it would continue to buy at least $120 billion of bonds each month “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals,” the post-meeting statement said.
“These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses,” the Federal Open Market Committee added in a statement that gained unanimous approval.
The committee, however, did not say it would extend the duration of those purchases.
The Federal Reserve on Wednesday made a key adjustment to its efforts to support the economy, while upgrading its outlook for growth.
As expected, the Fed held benchmark interest rates near zero following the conclusion of its two-day meeting.
Investors were watching whether the Fed would present outcomes-based guidance in which it would state the conditions necessary for a reversal in policy.
The Fed delivered in that respect, saying it would continue to buy at least $120 billion of bonds each month “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals,” the post-meeting statement said.
“These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses,” the Federal Open Market Committee added in a statement that gained unanimous approval.
The committee, however, did not say it would extend the duration of those purchases.
January 28, 2021
SGH Insight
In a message that appears clearly intended to counter increasingly hawkish rate expectations, senior sources from the People’s Bank of China convey that the key short-term interest rates that have just hit six-year highs [NB – on stronger growth prospects and PBoC liquidity mopping operations] should not be interpreted as a signal that the central bank is starting to shift to a tighter monetary policy stance, and that investors should not “overly exaggerate" the impact of the central bank’s short term liquidity operations on China’s stock and bond markets.
Today (Friday, Beijing time) marks exactly two weeks to the start of China’s major Spring Festival holidays, and our understanding is that over these next two weeks the PBoC will resume open market operations, including resumption of the 7-day and 14-day reverse repos [NB -- the reverse repo nomenclature in China refers to easing, not tightening operations as it does in the West], and will conduct medium-term lending facility operations to offer sufficient liquidity to help banks get through the Chinese New Year holiday.
Market Validation
Today (Friday, Beijing time) marks exactly two weeks to the start of China’s major Spring Festival holidays, and our understanding is that over these next two weeks the PBoC will resume open market operations, including resumption of the 7-day and 14-day reverse repos [NB -- the reverse repo nomenclature in China refers to easing, not tightening operations as it does in the West], and will conduct medium-term lending facility operations to offer sufficient liquidity to help banks get through the Chinese New Year holiday.
Policy Validation
(Bloomberg 1/29/21)
PBOC Says Market Talk of SLF Rate Hike ‘Untrue’
PBOC says it has noticed the rumor about potential SLF rate hike and has reported it to the police, the Chinese central bank says in a reply to Bloomberg News.
China's central bank on Friday conducted 100 billion yuan (about 15.45 billion U.S. dollars) of reverse repos amid rising fiscal expenditure at the end of the month.
The move aims to maintain reasonably ample liquidity in the banking system, according to a statement on the website of the People's Bank of China.
The interest rate for the seven-day reverse repos was set at 2.2 percent, the central bank said.
With 2 billion yuan of reverse repos maturing on the same day, the move led to a net liquidity injection of 98 billion yuan into the market.
(Bloomberg 1/29/21)
PBOC Says Market Talk of SLF Rate Hike ‘Untrue’
PBOC says it has noticed the rumor about potential SLF rate hike and has reported it to the police, the Chinese central bank says in a reply to Bloomberg News.
China's central bank on Friday conducted 100 billion yuan (about 15.45 billion U.S. dollars) of reverse repos amid rising fiscal expenditure at the end of the month.
The move aims to maintain reasonably ample liquidity in the banking system, according to a statement on the website of the People's Bank of China.
The interest rate for the seven-day reverse repos was set at 2.2 percent, the central bank said.
With 2 billion yuan of reverse repos maturing on the same day, the move led to a net liquidity injection of 98 billion yuan into the market.
January 26, 2021
SGH Insight
** We expect Chairman Powell will in fact shy away from going into too much detail on either the tapering or rates lift-off scenarios, and to instead put his accent not on the eventual exit, but on the long runway of communications in the approach to changes to come on either policy front. There will be a sequence of policy messaging through this very critical year, and in the near term, the emphasis will stay on the Fed’s very dovish reaction function to keep the US economy running as hot as possible for as long as possible.
Market Validation
Policy Validation
(From Chair Powell's press conference 1/27/21)
You know, in terms of tapering, it's just premature. We just created the guidance. We said we want to see substantial further progress toward our goals before we modify our asset purchase guidance. It's just too early to be talking about dates. We should be focused on progress that we'll need to see actual progress. When we see ourselves getting to that point, we'll communicate clearly about it to the public. So nobody will be surprised when the time comes. We'll do that well in advance of actually considering what will be a pretty gradual taper. >> If I might, your policies are working and you can do more, the question is can you stop doing it when it's time? >> Chairman Powell: Yeah. So I was here -- we had all the same questions back in -- after the global financial crisis. We raised interest rates, we froze the balance sheet size and slang the balance sheet -- shrank the balance sheet size. We can do that again. We learned a lot from that experience. We understand as we understood then, but even more so we understand the way to do is it communicate well in advance, do predictable things and move gradually. We're going to be transparent. But honestly, the whole focus on exit is premature if I may say. We're focused on finishing the job we're doing, which is to support the economy, give the economy the support it needs. There are people out there who have lost their jobs. It's essential we get them back to work as quickly as possible. We want to do everything we can to do that and that is our primary focus right now. It's too soon to be worried about that. When we come to exit, we have an understanding of how to do that and we'll do it very carefully but in the meantime our focus is giving the economy the support it needs.
(From Chair Powell's press conference 1/27/21)
You know, in terms of tapering, it's just premature. We just created the guidance. We said we want to see substantial further progress toward our goals before we modify our asset purchase guidance. It's just too early to be talking about dates. We should be focused on progress that we'll need to see actual progress. When we see ourselves getting to that point, we'll communicate clearly about it to the public. So nobody will be surprised when the time comes. We'll do that well in advance of actually considering what will be a pretty gradual taper. >> If I might, your policies are working and you can do more, the question is can you stop doing it when it's time? >> Chairman Powell: Yeah. So I was here -- we had all the same questions back in -- after the global financial crisis. We raised interest rates, we froze the balance sheet size and slang the balance sheet -- shrank the balance sheet size. We can do that again. We learned a lot from that experience. We understand as we understood then, but even more so we understand the way to do is it communicate well in advance, do predictable things and move gradually. We're going to be transparent. But honestly, the whole focus on exit is premature if I may say. We're focused on finishing the job we're doing, which is to support the economy, give the economy the support it needs. There are people out there who have lost their jobs. It's essential we get them back to work as quickly as possible. We want to do everything we can to do that and that is our primary focus right now. It's too soon to be worried about that. When we come to exit, we have an understanding of how to do that and we'll do it very carefully but in the meantime our focus is giving the economy the support it needs.
January 20, 2021
SGH Insight
Usually a dull affair, this BOJ meeting will include an important discussion on potentially expanding the band within which it allows 10-year Japanese Government Bonds to fluctuate under its Yield-Curve Control policy from the current +/- 0.2% around 0.0%, to +/- 0.3%.
The proposal, floated in the local press on Monday, led to a small pop up in 10-year JGB yields to 0.05%, but has yet to be confirmed or officially adopted. We believe, based on input from Tokyo, that the expansion of the 10-year JGB trading band will indeed be under consideration at this meeting, but that its formal adoption might not come until the March 18-19 MPM meeting, as part of an overall review of the BOJ monetary policy stance.
Market Validation
The proposal, floated in the local press on Monday, led to a small pop up in 10-year JGB yields to 0.05%, but has yet to be confirmed or officially adopted. We believe, based on input from Tokyo, that the expansion of the 10-year JGB trading band will indeed be under consideration at this meeting, but that its formal adoption might not come until the March 18-19 MPM meeting, as part of an overall review of the BOJ monetary policy stance.
(Dow Jones 1/21/21)
BOJ Could Tweak 10-Year Yield Target Range at Policy Review
As Bank of Japan Gov. Haruhiko Kuroda says he is looking for more effective ways to control the nation's yield curve, one option could include widening the target range for the 10-year JGB yield, which is currently set between minus 0.2% and plus 0.2%, according to people familiar with the BOJ's thinking. Mr. Kuroda said Thursday the central bank had no plan to change the overall framework of the yield curve control policy, but would examine the side effects of such measures, including the impact on
market functions, at its next policy-setting meeting in March.
Policy Validation
(National Post 1/29/21)
BOJ drops more hints of bigger yield moves ahead of March review
TOKYO - Bank of Japan policymakers discussed the merits of allowing long-term yields to move more flexibly around the bank's target, a summary of opinions at their January meeting showed, a sign the idea will be a key element of its policy review in March.
As the coronavirus pandemic forces it to maintain a massive stimulus program for a prolonged period, the BOJ plans to announce in March ways to make its tools more sustainable.
"With our monetary easing steps to be prolonged, allowing the 10-year government bond yield to move upward and downward to some extent ... will contribute to financial system stability," said one member, according to the summary released on Friday.
Allowing 10-year yields to move more widely likely won't hurt the economy much, because most money raised by households and companies aren't directly affected by long-term rate moves, another opinion quoted in the summary showed.
The comments are the strongest hints to date that the BOJ will allow long-term rates to deviate further from its 0% target in its March policy review.
BOJ Could Tweak 10-Year Yield Target Range at Policy Review
As Bank of Japan Gov. Haruhiko Kuroda says he is looking for more effective ways to control the nation's yield curve, one option could include widening the target range for the 10-year JGB yield, which is currently set between minus 0.2% and plus 0.2%, according to people familiar with the BOJ's thinking. Mr. Kuroda said Thursday the central bank had no plan to change the overall framework of the yield curve control policy, but would examine the side effects of such measures, including the impact on
market functions, at its next policy-setting meeting in March.
Policy Validation
(National Post 1/29/21)
BOJ drops more hints of bigger yield moves ahead of March review
TOKYO - Bank of Japan policymakers discussed the merits of allowing long-term yields to move more flexibly around the bank's target, a summary of opinions at their January meeting showed, a sign the idea will be a key element of its policy review in March.
As the coronavirus pandemic forces it to maintain a massive stimulus program for a prolonged period, the BOJ plans to announce in March ways to make its tools more sustainable.
"With our monetary easing steps to be prolonged, allowing the 10-year government bond yield to move upward and downward to some extent ... will contribute to financial system stability," said one member, according to the summary released on Friday.
Allowing 10-year yields to move more widely likely won't hurt the economy much, because most money raised by households and companies aren't directly affected by long-term rate moves, another opinion quoted in the summary showed.
The comments are the strongest hints to date that the BOJ will allow long-term rates to deviate further from its 0% target in its March policy review.
March 9, 2020
SGH Insight
Tim Duy's Fed Watch:
The Fed may have to act again before the next meeting, like Monday morning. Although last week some Fed officials like St. Louis Federal Reserve President James Bullard floated the idea that the Fed simply moved up the March rate hike, such comments shouldn’t be taken too seriously (the blackout period couldn’t come soon enough).
There is just too much uncertainty for the Fed to try to hold off on further easing and a strong argument for delivering more easing sooner than later. Given low inflation low and market expectation that it falls further, the low-risk, high-reward policy position argues in favor of additional easing.
Realistically, the Fed should be discussing just taking rates to zero and getting very far out ahead of the data but they tend not to react that quickly. Bond markets are telling them to do it. I don’t have a strong argument for gradualism in this environment. If you take rates to zero, you maximize the odds of getting ahead of the weakness. If you can’t get ahead of the weakness, you are going to zero anyways. In either case, once you get back to the zero bound, then you need to look at QE, yield curve control, forward guidance, liquidity provisions, etc.
Market Validation
The Fed may have to act again before the next meeting, like Monday morning. Although last week some Fed officials like St. Louis Federal Reserve President James Bullard floated the idea that the Fed simply moved up the March rate hike, such comments shouldn’t be taken too seriously (the blackout period couldn’t come soon enough).
There is just too much uncertainty for the Fed to try to hold off on further easing and a strong argument for delivering more easing sooner than later. Given low inflation low and market expectation that it falls further, the low-risk, high-reward policy position argues in favor of additional easing.
Realistically, the Fed should be discussing just taking rates to zero and getting very far out ahead of the data but they tend not to react that quickly. Bond markets are telling them to do it. I don’t have a strong argument for gradualism in this environment. If you take rates to zero, you maximize the odds of getting ahead of the weakness. If you can’t get ahead of the weakness, you are going to zero anyways. In either case, once you get back to the zero bound, then you need to look at QE, yield curve control, forward guidance, liquidity provisions, etc.
(FT 3/15/20)
The Federal Reserve cut US interest rates to zero before financial markets opened on Sunday and joined forces with other central banks in a bid to prevent a severe economic downturn caused by the coronavirus pandemic. After three weeks of chaotic drops in global stock markets and alarming signs of dysfunction in the US government bond market, the Fed stepped in with tools it has not used since the financial crisis. The sweeping measures underscore the severity of the damage that the coronavirus has already caused to economic growth, and the threat the outbreak poses to financial stability. The Fed dropped its policy rate by a full percentage point to a range of 0-0.25 per cent, a level not seen since 2015. It also announced wide-ranging actions to support financial markets, including an additional $700bn in asset purchases, expanded repurchase operations, dollar swap lines with foreign banks and a credit facility for commercial banks to ease household and business lending.
The Federal Reserve cut US interest rates to zero before financial markets opened on Sunday and joined forces with other central banks in a bid to prevent a severe economic downturn caused by the coronavirus pandemic. After three weeks of chaotic drops in global stock markets and alarming signs of dysfunction in the US government bond market, the Fed stepped in with tools it has not used since the financial crisis. The sweeping measures underscore the severity of the damage that the coronavirus has already caused to economic growth, and the threat the outbreak poses to financial stability. The Fed dropped its policy rate by a full percentage point to a range of 0-0.25 per cent, a level not seen since 2015. It also announced wide-ranging actions to support financial markets, including an additional $700bn in asset purchases, expanded repurchase operations, dollar swap lines with foreign banks and a credit facility for commercial banks to ease household and business lending.
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