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Is the Fed Easing or Tightening? A Closer Look at Quantitative Tightening
Looks like the long-awaited move to lower interest rates may have to wait a few more months. Last Sunday night on 60 Minutes, Chair Powell indicated the Fed will be waiting to pull the trigger on lowering rates. His message was that the Fed thinks the economy is in a good place and they think […]
Read more »Stress in the U.S. Treasury Market
“When financial markets come under pressure, vital functions such as the efficient allocation of capital and price formation become impaired.” BIS Quarterly Review, September 2022 Recently, there have been various signs of stress in the U.S. Treasury market. Coincidentally, there were two recent reports released by regulators discussing the Treasury market. The first is the […]
Read more »Inflation + Recession = Stagflation
What is “stagflation”? It’s when prices for goods and services are increasing while the economy is not growing. Are we headed towards it? Well, by any measure, inflation is a problem. For example, take a look at the consumer price index (CPI) going back to the early ‘70s: Sources: U.S. Bureau of Labor Statistics, Consumer […]
Read more »Interest Rate Hedging and the Impact on Interest Rates
Introduction Economic fundamentals, supply chain issues, and energy prices have all contributed to interest rates moving higher. The Fed started raising rates in March of this year to combat the rise in inflation. The 10-year US. Treasury started the year around 1.53%, and at this writing is at 3.35%. (Note the TNX is a CBOE […]
Read more »Why You Need to Know about the Treasury Futures Spread
In March of 2020, an anomaly in a relatively obscure part of the U.S. Treasury bond futures market caused a major disruption in that market, which in turn prompted the U.S. Federal Reserve to put forth $5 trillion of liquidity to calm the markets. Yep, that was “trillion”, with a “t”! At the root of […]
Read more »COVID-19 and Model Risk
‘All models are false; some models are useful.’* The COVID-19 pandemic has turned all of us into amateur epidemiologists. We follow obsessively the daily briefings of political leaders and public health experts, track the latest figures on hospital deaths and newly confirmed infections, and search desperately for any sign that the curve is flattening. In […]
Read more »COVID-19, A Wake-up Call: It’s Time to Seriously Consider Cryptocurrency, If Only for Your Health
In finance parlance, we often say “Cash is King”. Cash might be a king, but it is a sick and infected king, which infects everyone who touches it, and in severe cases causes death. If only for our health, it’s time to overthrow this king and replace it with a better, healthier (literally!) and more […]
Read more »Federal Reserve Responses: Great Financial Crisis vs. Corona Crisis
As the Great Financial Crisis (GFC) of 2007-2008 began unfolding, the Federal Reserve initiated several programs intended to mitigate the economic deterioration that was originally rooted in a deterioration in the mortgage credit markets but which had rapidly expanded across the entire global economy. Many of the actions undertaken by the Fed were unprecedented and, […]
Read more »Tokenization – Why Should You Care?
There has been a lot of “buzz” about tokenization. Is it just hype? Or should you actually care? First, what is Tokenization? Simply put, in the financial context, tokenization of assets refers to the process of issuing a digital token that runs on a blockchain. This token is a digital representation of an asset – […]
Read more »The Long and Short: Predicting Recessions
Over the last year, there has been a lot pf press regarding negative yield curves and the ability of an inverted curve to predict a recession. There are other indicators that market practitioners use to foretell a recession, such as the ISM purchasing managers’ report and consumer sentiment. Now there is a new kid on […]
Read more »Libor Transition and the Forest of Thorns
Most everyone who has grown up with Walt Disney classic films will recall the valiant Prince on his noble steed slashing his way through the Forest of Thorns to reach Maleficent’s castle and rescue Sleeping Beauty. While the transition from Libor to SOFR (or more generally from IBORs to Risk Free Rates or RFRs) is […]
Read more »The Long and Short: Can Hedging Negative Convexity Impact the Level of Interest Rates?
Negative convexity is a feature often found in callable bonds and mortgage backed securities. For this blog, the focus will be on agency MBS. Its source is the embedded option that allows for prepayment of principal prior to final maturity. This blog will examine negative convexity, how portfolio managers can hedge the risk associated with […]
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