Posted on 04/27/2013 5:57:30 PM PDT by whitedog57
During 2006, the slope of the US Treasury Curve (10 yr – 2 yr) slightly negative. Beginning in 2007, the curve began steepening, particularly in the latter half. The 10-2 curve kept steeping through 2008.
Enter The Federal Reserve. Starting in September 2007 and through December 2008, The Fed reduced The Fed Funds Target Rate from 5.25% to 0.25% where it has remained.
While The Fed has pinned The Fed Funds Target Rate at 0.25%, the 10-2 slope has continued to rise, partly due to the various quantitative easing programs starting in December 2008.
Quantitative Easing 1 (QE1, December 2008 to March 2010)
On November 25, 2008, the Federal Reserve announced that it would purchase up to $600 billion in agency mortgage-backed securities (MBS) and agency debt. On December 16, the program was formally launched by the FOMC. On March 18, 2009, the FOMC announced that the program would be expanded by an additional $750 billion in purchases of agency MBS and agency debt and $300 billion in purchases of Treasury securities.
Quantitative Easing 2 (QE2, November 2010 to June 2011)
On November 3, 2010, the Fed announced that it would purchase $600 billion of longer dated treasuries, at a rate of $75 billion per month. That program, popularly known as “QE2″, concluded in June 2011.
Operation Twist (2011-2012)
The Federal Open Market Committee announced on September 21, 2011 the implementation of Operation Twist. The plan was to purchase $400 billion of bonds with maturities of 6 to 30 years and to sell bonds with maturities less than 3 years, thereby extending the average maturity of the Fed’s own portfolio. On June 20, 2012 the Federal Open Market Committee announced an extension to the Twist program by adding additionally $267 billion thereby extending it throughout 2012.
Quantitative Easing 3 (QE3)
On September 13, 2012, the Federal Reserve announced a third round of quantitative easing (QE3). This new round of quantitative easing provided for an open-ended commitment to purchase $40 billion agency mortgage-backed securities per month until the labor market improves “substantially”.
Quantitative easing 4 (QE4)
The Federal Open Market Committee went for a fourth round of quantitative easing (QE4) on December 12, 2012. This round authorized up to $40 billion worth of agency mortgage-backed securities per month, and $45 billion worth of longer-term Treasury securities.
Both the 10 year Treasury yield and 2 year Treasury yield have fallen since 2009.
To see the impact on the 10-2 yield curve, see the following chart.
Between the end of QE2 and through Operation Twist, the 10-2 curve did fall, but only to pre QE1 levels (early 2008). In a sense, operation twist did more to lessen the slope of the yield curve (WITHOUT adding assets to The Fed’s Balance Sheet) than the QEs.
Fortunately for borrowers, mortgage rates are considerably lower now than at the beginning of 2006.
So, it appears that Operation Twist (buying long-term Treasuries and selling short-term Treasuries) has been more effective (and they didn’t have to print money!) than QEs and printing money.
Bottom line: STOP the QEs and restrict policy to Curve Twists.
At this point does it matter? The only hope for time that I see is that we still have 300 mil consumers. Because of that, our dollar gets grace, as the politician’s in various countries want their business’s to sell to the US consumer to keep their economy going as well. Very ugly long term for sure.
(The World Is Not Flat!)
The effect of adding nearly 1 million barrels a day every year for the next 7 years or so—as has happened for the last 3 years— will be to backstop the dollar.
You absolutely cannot underestimate what oil independence will do to the US financial system.
The politician’s will not allow it to happen. They are bought by the Saudi’s.
Funny stuff, why are the mods making me check my posts.
Is honesty a crime at free republic
Mod’s feel free to chime in!
All the oil resources being developed are on private lands so the feds are out of it.
Are you by chance in the market for a new bridge with toll booths going each way. It’s a nominal toll, at 1.25 per car.
If you’re ready, I will match your investments, until purchase. You can’t beat a good bridge!
Thank God we have 8000+ tons of gold reserves.
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