08/08/2017 - Yra Harris On “Needles And Pins” – Central Banks Have Created A Pottery Barn Global Bond Market

“On his Epsilon blog, Ben Hunt has conjectured that the beginning of the FED‘s balance sheet shrinkage will result in increased monetary velocity. If Ben Hunt is correct then the FED‘s QT ought to result in the combination of a steeper curve and increased bank profits. But with all things, timing will be KEY. Yesterday, I noted the 20 basis-point range the 2/10 curve has been sitting so I urged patience. The 200-day m.a. is 109.70 basis points, solidifying the important of this range top. My warning is that these historical relationships have been debased by the actions of the world’s central banks so even the best of the global macro traders have been led down false paths.

The bottom line is the Fed, BOJ, BOE and ECB have created what Colin Powell would refer to as a POTTERY BARN GLOBAL BOND MARKET. They broke the market therefore they own it. For now! But as I have warned, HELL HATH NO FURY LIKE A MARKET SCORNED. I am down on my knees and pray they go away … needles and pins.

***Today the IMF released the data on the Swiss National Bank foreign currency reserves, which reached a record high on weaker franc. In July as the Euro/Swiss cross was making 30-month highs, the SNB was busy adding 20 billion in foreign exchange reserves. The printing presses were busy as the SNB was creating francs and selling them for euros, dollars and other foreign currencies, and investing the proceeds in a basket of foreign bonds and the stocks of more than 3,000 global corporations. The Swiss show that there is no end to the quantitative easing entered into by the central banks because the EURO/CHF cross has rallied to the highest levels since the January 2015 removal of the 1.20 PEG. What exactly is the SNB trying to accomplish beyond the greatest feat of alchemy in world financial history? Now I will listen to Jackie DeShannon’s 1959 hit.”

Notes From Underground: Yield Curves Are Needles and Pins

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