Sunday, July 15, 2018

ICYMI: "U.S. Yield Curve to Invert in Mid-2019, Morgan Stanley Says"

From Bloomberg, July 11/12:
  • Fed in March to map out end to balance-sheet contraction: MS
  • Net Treasury supply seen smaller thanks to Fed balance sheet
The Federal Reserve next March will probably map out an end to the contraction in its balance sheet, helping support longer-dated bond yields, which will drop below those on shorter-dated notes by the middle of 2019, according to Morgan Stanley.

“Investors are underestimating the size of the SOMA portfolio” that will be needed to keep the benchmark overnight interest rate within the range targeted by the Fed, Morgan Stanley strategists including Sam Elprince wrote in a July 12 note. SOMA refers to the System Open Market Account, the Fed’s name for its pool of assets.
  • Morgan Stanley cut its forecast for net U.S. government debt issued by the Treasury by $690 billion through 2020
  • The bank sees 10-year Treasury yields at 2.75 percent by year-end, and 2.50 percent by mid-2019. It previously forecast them at 2.85 percent for end-2018 and 2.70 percent for the second quarter of 2019.
  • The yield curve will invert “by mid-2019,” the analysts said. “We suggest an overweight to U.S. Treasuries.”
The Fed started shrinking its balance sheet last October, unwinding the unprecedented quantitative easing launched during the financial crisis. The recent phenomenon of the effective federal funds rate trading toward the upper end of the Fed’s target range has been a sign to some observers that liquidity may already be getting tight....MORE

"As the Yield Curve Flattens, Threatens to Invert, the Fed Discards it as Recession Indicator"
"Who’s Afraid of a Flattening Yield Curve?"
Blackstone's Byron Wien: "No Recession in Sight" 
Our best guess is market downturn in 2019 and recession in 2020.*
But more new highs first.
Mr. Wien seems a bit more optimistic...

San Francisco Fed: "Economic Forecasts with the Yield Curve"

And from last December:

Interpreting the Yield Curve: Counterintuitive Stimulative Effects of Rate Hikes
The writer, David Andolfatto is Vice President of the Federal Reserve Bank of St. Louis.
Views should in no way be attributed to the Federal Reserve Bank of St. Louis, or to the Federal Reserve System.
Neither should the blog be taken as an endorsement of the fashion sense of the Federal Reserve Economics Data clothing line:

The FRED Team

Posted in FRED Announcements
From Macromania.....