No expansion of the balance sheet.
The Fed to:
1) Roll over expiring short term treasuries on to long term treasuries
2) To actively sell $400bn of short end treasuries and buy longer dated treasuries
3) To roll over mortgage back securities that the fed holds on her balance sheet to push mortgage rates lower.
Immediate comment from me would be:
1) Negative for Pms..
2) Positive for USD.
3) Positive for US housing market (will take a while to feed through).
4) Positive for overseas owners of US long dated treasuries.
5) Good for Corporates as lowers Corporate debt yields.
6) No change for Em economies
7) Short term bearish for markets.. we have a capitulation move in the next few weeks is my estimate.. im holding shorts and USDs..
8) Likely to flatten yield curve though Fed may be surprised by how many overseas holders of tbonds press the sell button.
9) Negative for Mortgage Reits.. this will push down margins a little.. as a competitor bidder – the fed
10) In the medium and longer term it makes stock yields look more attractive as relative to bonds and cash they represent better value post today’s news.
Initial comments.. All the best
http://www.marketwatch.com/story/fed-decides-on-400-billion-bond-swap-2011-09-21
Rich
(10 votes, average: 5.00 out of 5)
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