(Reuters) The U.S. Federal Reserve has launched a study to see if U.S. Treasury markets are being hampered by a lack of liquidity, an issue some investors and others have cited as a potential risk to financial stability, Fed board member Lael Brainard said on Wednesday.
Brainard, speaking at a financial conference in Austria, said events like the sharp swing in U.S. bond prices last October and earlier this year in the market for German bonds added to anecdotal evidence that markets for the world’s safest assets are less deep and less liquid than they had been.
If true, she said, that could cause trouble in times of financial stress if investors cannot freely buy and sell safe haven bonds at other than fire-sale prices.
Sorry, Lael, are you saying that there may not be enough liquidity in the bond market?
You are aware the M1 Money Supply doubled since 2008 while M2 Money Supply increased by 50% since 2008.
And The Fed’s Balance Sheet has exploded in size going along with a near zero Fed Funds Target rate.
But here is the real problem Ms. Brainard. Wage growth has stagnated, real median household income is back at 1990 levels, labor force participation is falling, all which is causing M2 Money Velocity to crash.
She went on to raise a red flag over high frequency traders (HFTs), but ignored the fact that … nothing is really working. Or at least not working too well. Except for creating asset bubbles.
There is so much liquidity sloshing around the banking system that it reminds me of the old Bobby Darin song.
If Stanley Fischer, Vice Chair of The Federal Reserve Board of Governors, is correct that the US is near full employment, then today’s Mortgage Bankers Association (MBA) applications release is bad news. Mortgage purchase applications NSA are only at 1996 levels!
Mortgage applications decreased 4.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 26, 2015.
The Refinance Index decreased 5 percent from the previous week to its lowest level since December 2014.
The seasonally adjusted Purchase Index decreased 4 percent from one week earlier and remains at pre-housing bubble levels from 1996.
The unadjusted Purchase Index decreased 5 percent compared with the previous week and was 14 percent higher than the same week one year ago, but is only at 1996 levels.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.26 percent, its highest level since October 2014, from 4.19 percent, with points decreasing to 0.33 from 0.38 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
Now that the Greece default crisis seems over (for the moment), Treasury yields and mortgage rates will continue rising in anticipation of The Fed’s anticipated rate hike.
After sweating through several days of the expected Greek default, it is nice when the Central Bankers provide us with humor to help keep our sanity.
Federal Reserve Vice Chairman Stanley Fischer claims that the USA is finally near full employment!
Well, the number of people NOT in the labor force is greater than 37% of the labor force + those NOT in the labor force.
37+% NOT in labor force is near full employment? Stan, you crack me up!
“And here is another one .,,”
Like the old folk song, “Where Has All The Money Gone,” , Greece has allocated just 11 percent of the total funding, or circa 27 billion euros” to operating costs. All the rest want for interest, etc. to creditors.
Only 11% of IMF, etc., funding got back to operating Greece? I see, borrowing to pay creditors.
“Can I borrow billions just to pay the interest on what we already owe?”
Now that financial markets have calmed down after Monday’s turkey shoot about a Greek default, we can focus on “good” news in the US … the Case-Shiller home price index rose 4.9% in April.
(Bloomberg) — Home prices in 20 U.S. cities rose at a slower pace than projected in April, indicating the market was experiencing uneven gains as it entered the busier selling season.
The S&P/Case-Shiller index of property values increased 4.9 percent from April 2014 after climbing 5 percent in the year ended in March, the group said Tuesday in New York. The median estimate of 31 economists surveyed by Bloomberg called for a 5.5 percent advance. Nationally, prices rose 4.2 percent.
A pickup in sales as the job market improves and younger Americans start venturing out on their own means gains in home prices will probably accelerate as demand outstrips supply. Rising residential real-estate values will, in turn, help owners rebuild equity and spur builders to take on more projects, leading to increases in spending and investment that will give the economy a boost.
“There’s no reason to think home prices won’t continue to rise at a decent clip,” Joe LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, said before the report.
Say it ain’t so, Joe!
Here is one reason that home prices may NOT rise at a decent clip (whatever that means). Home price growth is still over twice as high as wage growth.
Home prices have been sizzling despite stagnant wage growth with The Fed’s 3rd round of QE.
San Francisco and Denver are both growing in excess of 10% YoY. Washington DC is the slowest growing metro area at 1.1% YoY … behind Cleveland at 1.3%.
Think what would have happened to Cleveland if they had WON the NBA championship!
The morning opening saw no progress in the Greek credit crisis (both the EU and Greece are standing firm). The result? Greek 2 year sovereign bond yield surged by 1,366 basis points.
10 year sovereign yields rose by a lesser amount, but the US 10 year Treasury yield dropped by around 10 basis points.
World equity markets are down all over the world.
Greek banking deposits continue to plummet on withdrawals.
Given the flaming rhetoric coming out of Europe such as Jean-Claude Juncker of the EC saying “You shouldn’t commit suicide because you’re afraid of dying. You should say ‘yes’ regardless of what the question is”, it looks like not much is going to change in this game of financial chicken.
Then we have Puerto Rico, where the Governor is calling for debt relief.
(Bloomberg) — Prices on Puerto Rico’s newest general obligations sank to record lows after Governor Alejandro Garcia Padilla said investors should be prepared to sacrifice if they want the cash-strapped island’s economy to grow.
General obligations maturing in July 2035 traded Monday at an average of about 71 cents on the dollar, down from 77.3 cents Friday and the lowest since they were first issued at 93 cents in March 2014, according to data compiled by Bloomberg.
With two days left in Puerto Rico’s fiscal year, the commonwealth is struggling to pass a budget that would allow it to make payments on a $72 billion debt load. Investors should work with the commonwealth to reduce its obligations, Garcia Padilla told the New York Times in an interview.
“The debt is not payable,” the governor said. “There is no other option.”
Apparently. Puerto Rico is the US version of Greece. Our own Suicide King.
This week should be interesting.
Greek bank “holidays” (a euphemism for banks being closed), drained ATM machines, threats from creditors, etc. We will keep a close eye on Greek Credit Default Swaps, Greek Debt Yields and The Euro (or Gyro). (Greek banks and the Greek stock market will be closed on Monday).
Who are the stakeholders in the Greek sovereign default? Germany is a big loser.
Yes, Germany is very concerned … for their banks and other investors.
Bear in mind that the USA is no piker on debt issuance. China and Japan are the biggest stakeholders in US debt.
And, of course, The US Federal Reserve is the largest stakeholder of all!
As Greek citizens ponder closed banks and empty ATM machines, they will remember the stakeholders in Greek debt.
Greece, dead and loving it????
UPDATE: The Euro (or Gyro) has declined -1.74% on Sunday afternoon at 3:18pm EST.