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Tag Archives: Central Banks

NIRP Did It: I’m in Awe of How Central-Bank Policies Blind Investors to Risks

“Reverse-Yankee” Junk Bond Issuance Hits Record. It’s paradise for US companies looking for cheap money. They range from sparkly investment-grade companies, such as Apple with its pristine balance sheet, to “junk” rated companies, such as Netflix with its cash-burn machine. They have all been doing it: Selling euro-denominated bonds in Europe. The momentum for these “reverse Yankees” took off when the ECB’s Negative Interest Rate Policy and QE – which includes the purchase of euro...

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Bank of Japan Takes Away Punch Bowl, Balance Sheet Declines

Was “QQE” just a pretext for bringing the government bond market under control to avoid a Greek-style debt crisis? In June, total assets on the Bank of Japan’s balance sheet dropped by ¥3.79 trillion yen ($34 billion) from May, to ¥537 trillion ($4.87 trillion). It was the third month-over-month drop in seven months, and the first such drops since late 2012, when the Abenomics-designed blistering “QQE” (Qualitative and Quantitative Easing) kicked off. So has the “QQE Unwind”...

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Next Central Bank Puts QE Unwind on the Calendar

The end of an era spreads. Markets were surprised today when the Bank of England took a “hawkish” turn and announced that three out of nine members of its Monetary Policy Committee – including influential Chief Economist Andrew Haldane, who’d been considered dovish – voted to raise the Bank Rate to 0.75%, thus dissenting from the majority who kept it at 0.5%. This dissension, particularly by Haldane, communicated to the markets that a rate hike at the next meeting in August is likely....

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Gresham’s Law and Bitcoin

Gresham’s Law and Bitcoin Gresham’s law holds that “bad money drives out good money,” meaning that given a choice of currencies (broadly speaking, “money” that serves as a store of value and a means of exchange), people use depreciating “bad” money to buy goods and services and hoard “good” money that is appreciating or holding its value. As this dynamic plays out, eventually there is little “good money” in circulation and...

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How the ECB Helped Spain “Recover” Faster than Italy from the Crisis

A nation of savers v. a nation of debtors. By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET. In April 2017, the IMF predicted that by the end of the year the Spanish economy would overtake Italy’s in per-capita GDP. It didn’t happen, but Spain does continue to close the gap on Italy. In 2017, Spain maintained its per-capita GDP at 92% of the EU average while Italy’s slipped another point to 96%. During the darkest depths of the Great Recession, back in 2011 and 2012,...

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Chasing Yield during ZIRP & NIRP Evidently Starved Human Brains of Oxygen. Now the Price Is Due

See Argentina’s 100-year dollar-bond and emerging-market “turmoil” as the Hot Money flees. Let’s be clear: It’s not just Argentina. But Argentina is the most elegant example. The exodus of the hot money from emerging markets where cheap dollar-debts were used to fund pet projects and jack up leverage is – once again – in full swing. Cheap dollar-debt in emerging markets is an old sin that, like all old sins, is repeated endlessly. The outcome is always trouble. But during the act, it...

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Who the Heck Bought $1.2 trillion in New US Treasuries over the past 12 Months?

Russia, Japan, and the Fed dumped. So who bought? China’s holdings of US Treasury bonds, notes, and bills, after rising in February and March, fell by $5.8 billion in April to $1.18 trillion. Thus, China’s holdings have remained within the same range since August 2017, despite threats of a trade war and rumors that it would dump US Treasuries. China remains the largest holder, a position it had lost during its era of peak capital-flight from October 2016 through March 2017. Japan has...

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ECB Reacts (Unofficially) to NIRP’s Revenge in Italy

Bond turmoil, no problem. But if Italy doesn’t stick to the rules, the ECB might let the bonds go, “safeguard the remaining Eurozone members,” and “merely control the disaster.” After dizzying plunges in the Italian government bond market on Monday and Tuesday, the ECB wasted no time communicating through unofficial channels: It’s not stepping in for now, it’s keeping an eye on the Italian bonds, but they haven’t really plunged all that much yet, and yields aren’t really that high, and...

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NIRP’s Revenge: Italian Bonds Plunge, Worst Day in Decades

Markets wail and gnash their teeth as “normalization” of Italian yields sets in. On Tuesday, Italian bonds had their worst day in Eurozone existence, even worse than any day during the worst periods of the 2011 debt crisis. And this comes after they’d already gotten crushed on Monday, and after they’d gotten crushed last week. And this happened even as the ECB is carrying on its QE program, including the purchase of Italian government bonds; and even as it pursues its...

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Hilarity in NIRP Zone: Italian 2-Year Yield Still Near 0%, as New Government Proposes Haircut for Creditors and Alternate Currency, Markets on “Knife Edge”

The ECB’s Negative Interest Rate Policy has been the funniest monetary joke ever. The distortions in the European bond markets are actually quite hilarious, when you think about them, and it’s hard to keep a straight face. “Italian assets were pummeled again on mounting concern over the populist coalition’s fiscal plans, with the moves rippling across European debt markets,” Bloomberg wrote this morning, also trying hard to keep a straight face. As Italian bonds took a hit, “bond...

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