QT: quantitative tightening

"Early in the pandemic, the Federal Reserve undertook one of the fastest quantitative easing campaigns in its then-107 year history…The biggest drop in demand has come from the Federal Reserve, which “plans to offload Treasuries from its balance sheet to $60 billion a month.” This transition, called the balance sheet “runoff,” constitutes a massive change in US monetary policy…

" This fall in market demand was precipitated by major outflows of US sovereign debt from foreign buyers, Japan chief amongst them. Japan’s central bank and numerous Japanese pension funds sold $2.4 billion dollars worth of US treasuries last May alone, after six months of persistent sales that constituted the “longest streak of outflows in data going back to 2005.” Japan’s efforts had been undertaken to deal with its own currency problems…"

DB2

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True, but they were also holding an investment which was hard-wired to drop in value as the Fed raised interest rates. Buy low, sell high?

Jeff

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Translation (I think): A once-again functioning bond market would bring on catastrophic results for the global economy.

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This is the mechanism by which rising interest rates hope to tame inflation. It is the reason many are discussing the prospects of recession. In the US, the Fed hopes for a soft landing but many say that is unlikely. Recession in Europe and much of the rest of the world seems likely. Yes, recession is a painful solution to the problem. Many will lose their jobs. And some will go bankrupt. That is the price of inflation excesses.

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Jeff,

The Japanese institutions have bigger fish to fry. The Japanese Yen is depreciating far to much to hold onto the US paper. The forces in play are trying to appreciate the Yen.

This is going to spiral from here.

The Fed continues to reduce its balance sheet. Their assets are now down 14-15% from the peak back in March 2022.

DB2

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