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@hank REPO market, JP Morgan, Dimon explanation from Oct. 15
Here’s what I think the salient passage from your linked article is:
“If JPMorgan had raised its interest rates on CDs and savings accounts earlier this year, instead of lowering them, it would have attracted plenty of cash that it could have lent to the repo market when time came in September. But offering higher interest rates is anathema to banks – and they only do it under duress of competition. And if the Fed promises rate cuts, the whole industry backs off competing for deposits, and some banks, such as JPMorgan, ended up drawing down their reserve balances.”
Catch - It’s way outside my expertise. But this era of ultra-low rates seems bizarre, to say the least. And it’s prevailed much longer than most would have expected. I suppose the answer is to throw your money at the stock market and pull 20% a year, rather than settling for just 2-3% from cash or government bonds.
@hank You noted: "Catch - It’s way outside my expertise. But this era of ultra-low rates seems bizarre, to say the least. And it’s prevailed much longer than most would have expected. I suppose the answer is to throw your money at the stock market and pull 20% a year, rather than settling for just 2-3% from cash or government bonds." I agree with the first two I have set in bold above; but the third depends on what one may see as a trend until I isn't. Then it may be run for cover, not unlike equities unwinding for whatever reason(s). The 2-3% yields from government bonds are here and now. But, the yield path continues a slow drift downward (bump up a few weeks ago, but lower again the past few days). This action for bonds continues to cause price action to the positive from the buy demand. So, U.S. bond buying continues for numerous reasons as to safety and/or a combination of safety away from the equity markets and the negative bond yields in other countries. As to the 20% from equity, yes; another area that is maintaining for the time.
I offer these few performance blips for relatively safe bonds, with the exception of the corp. bonds; which I suspect will melt in value if the equity market starts to go negative for a longer time frame. Bond etfs, YTD returns down a bit from 2 weeks ago, which was a near time high price point:
The above gains are also reflected in many broad bond funds that may contain mixes of these bond types.
IF yields froze in their tracks starting tomorrow, then yes; holding a bond (fund) for yield only would be a problem, as the price appreciation has likely stopped, too. Not unlike a nice equity fund known to pay a decent dividend; if all the companies within that fund became price range bound + or - .5%, then the only remaining value would be the dividend, let us example at 2%. Both holdings would become a wash against one another for profit potential, eh?
Ok, the sleep clock arrives. Hoping I have not caused confusion; but money still may be made in bond holdings if yields continue to some unknown bottom pushing up the prices, where the money is being made (this statement applies to U.S.).
@Catch22 - My third point was followed by this clarification: “Offered only as Reductio ad absurdum” (trying to make a point through an absurd suggestion). However, based on some of those YTD bond returns you just cited, I believe an equally absurd argument could be made for piling into some of those.
Just finished reading the Bloomberg article I linked this morning in @Puddenhead’s “Buying / Selling” thread. Pretty clear explanation I believe. Recommend it to others if they haven’t read it. The thing to watch for now is some “spark” that could trigger panic selling of equities.
Comments
Derf
Here’s what I think the salient passage from your linked article is:
“If JPMorgan had raised its interest rates on CDs and savings accounts earlier this year, instead of lowering them, it would have attracted plenty of cash that it could have lent to the repo market when time came in September. But offering higher interest rates is anathema to banks – and they only do it under duress of competition. And if the Fed promises rate cuts, the whole industry backs off competing for deposits, and some banks, such as JPMorgan, ended up drawing down their reserve balances.”
Catch - It’s way outside my expertise. But this era of ultra-low rates seems bizarre, to say the least. And it’s prevailed much longer than most would have expected. I suppose the answer is to throw your money at the stock market and pull 20% a year, rather than settling for just 2-3% from cash or government bonds.
(Offered only as Reductio ad absurdum )
You noted: "Catch - It’s way outside my expertise. But this era of ultra-low rates seems bizarre, to say the least. And it’s prevailed much longer than most would have expected. I suppose the answer is to throw your money at the stock market and pull 20% a year, rather than settling for just 2-3% from cash or government bonds."
I agree with the first two I have set in bold above; but the third depends on what one may see as a trend until I isn't. Then it may be run for cover, not unlike equities unwinding for whatever reason(s).
The 2-3% yields from government bonds are here and now. But, the yield path continues a slow drift downward (bump up a few weeks ago, but lower again the past few days). This action for bonds continues to cause price action to the positive from the buy demand.
So, U.S. bond buying continues for numerous reasons as to safety and/or a combination of safety away from the equity markets and the negative bond yields in other countries.
As to the 20% from equity, yes; another area that is maintaining for the time.
I offer these few performance blips for relatively safe bonds, with the exception of the corp. bonds; which I suspect will melt in value if the equity market starts to go negative for a longer time frame.
Bond etfs, YTD returns down a bit from 2 weeks ago, which was a near time high price point:
---TIP =+7.6% (inflation bonds, mixed duration)
--- IEF = +9.1% (7-10 yr notes)
--- LQD = +15.7% (corp. bonds)
--- LTPZ = +17.5% (long duration TIPs bonds)
--- EDV = +23% (extended duration gov't)
--- ZROZ = +25.4% (zero coupon bonds)
The above gains are also reflected in many broad bond funds that may contain mixes of these bond types.
IF yields froze in their tracks starting tomorrow, then yes; holding a bond (fund) for yield only would be a problem, as the price appreciation has likely stopped, too.
Not unlike a nice equity fund known to pay a decent dividend; if all the companies within that fund became price range bound + or - .5%, then the only remaining value would be the dividend, let us example at 2%.
Both holdings would become a wash against one another for profit potential, eh?
Ok, the sleep clock arrives. Hoping I have not caused confusion; but money still may be made in bond holdings if yields continue to some unknown bottom pushing up the prices, where the money is being made (this statement applies to U.S.).
Be well,
Catch
Just finished reading the Bloomberg article I linked this morning in @Puddenhead’s “Buying / Selling” thread. Pretty clear explanation I believe. Recommend it to others if they haven’t read it. The thing to watch for now is some “spark” that could trigger panic selling of equities.