Tuesday, December 5, 2017

All that effort to wrangle the treasury curve

And we were operating today at a slope of 70 basis points.  The one year rising to 1.66, the Fed quit twisting for a while. The ten year has not really moved in over a year, quite remarkable, especially since Congress pays that rate.  I do not think the ten year goes much above 2.4 before therequant, it is being depressed. The stock market is at best a break even.

A fun chart:

We can see the green, that is Janet lending short term to Congress. using money from long term bonds expired or sold.

The  blue and red are the excess reserves, holding steady while Janet buys the short debt.

Janet is trying to kick the habit, but if she stops, then all the excess reserves rush to fund Congress directly. That causes, oddly, the government subsidies to rise as Fed payouts to depositories reduces. Unstable, Congress will continue to borrow short, and it gets the automatic subsidy on the side. But the banks should reduce private lending to cover the short fall, whoops, recession.

Or Janet just keeps twisting, assuming the rising shorts on her balance sheet are nothing. But Hanet cannot really sell her long term, they should expire. Otherwise, sequence forward and backward are changed,  So, she has to make the short and long balance, on the way down, follow as best she can the reverse.   Her best bet is to retire and write a book about basket brigade theory, like the Mr. K banker.

No comments: