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BOJ June ‘21 Monetary Policy Meeting out:
No change in YCC framework: policy rate -0.1%, JGB 10Y Yield at “around zero” - however, the “around zero” caveat of “around zero as we define it- no ceiling“ that they snuck in from April policy meeting remains ↓
“without setting an upper limit” + “SO THAT the 10y JGB yield will remain around 0%” ← this makes no sense. Essentially saying “by removing the cap on yields, yields will remain capped and stay at around zero.”
May sound benign- but frankly, removing the upper limit of where 10y JGB yields will be pinned is NOT controlling the yield curve. It’s giving itself an out should yields surge and BOJ finds they somehow can’t mechanically cap yields after all.
BOJ’ YCC on the 10y JGB yield upper bound- the level where BOJ would step in and conduct a fixed rate operation to buy an unlimited amount of JGBs at a fixed level, went from 0.1% → 0.2% → 0.25% → no upper limit. Had they not incrementally nudged up the upper limit over the years, perhaps one might be able to read “no upper limit” as “they have that much control over the long end of the curve.“ But up, up, up, gone = you didn’t have a grasp on it this whole time and now admitting yield curves cannot be effectively controlled.
This was the language that was in place from YCC inception in Sept ‘16 until the last time... (More)
For those of you who are trying to get your mind around YCC and the history of the FEDs actions, this paper is exceptional:
Very interesting chart in the paper:
S&P during that period:
After spending time talking with John Fadool, I have been trying to think through financial history.
Here is the link to the video if you didn't catch it: https://youtu.be/5zPYfC0Q0tM
I am just spending time thinking through each decade and comparing every chart I can find. No conclusions yet, just observations.
John Fadool said he would a video with me before he goes off to boot camp. I really appreciated it because I have had a lot of questions about financial history and how the current infrastructure bill is playing out.
There is a pretty big divide between the financial industry and politics. John bridges that divide. We went through the 100-year charts of interest rates, GDP, fiscal spending, and a lot more.
One major takeaways= infrastructure bill = very low probability of making it through at this point. This has pretty big trading implications if you are monitoring the market.
I have attached a word doc with links to all the charts we looked at.
I realize the video is a little long so here is the breakdown: The first half of the video we break down the financial history of every single decade since 1920. The second half of the video we focus on the current fiscal landscape and the risks that await us. Most people are not talking about the shifts that are taking place with Boomers, Millenials and how they impact the job market/stock market.