As volatility has increased dramatically in world markets, shocks to the global financial system are coming. Look at this…
Interest Rates Continue To Rise!
By Peter Boockvar, author of the Boock Report
April 17 (King World News) – Here is what Peter Boockvar wrote today as the world awaits the next round of monetary madness: The 2 yr note yield is now a stone’s throw from touching 2.40% as the new NY Fed President John Williams is speaking in Madrid. He forecasts a 3.5% unemployment rate next year and expects core PCE to touch 2% this year. He did repeat the need for “gradual” rate hikes to “reduce the risk that the economy could overheat.”
Many More Hikes To Come?
Now of course anything and everything could change but what this means as of today is the debate over whether the Fed hikes 2 or 3 more times this year is somewhat irrelevant because based on Fed forecasts as of now, they want to continue hiking not just this year but will next year too with the end goal of a 3% fed funds by the end of next year. I see little chance they actually get there but that is what is on the mind of some of them, particularly Williams and I’d bet Powell too.
BOND MOVES: China, Japan, Hedge Funds & The Fed
Apparently taking advantage of the January jump in interest rates, foreign buying of US Treasuries picked up noticeably in February totaling $43.2b. That’s the biggest one month of purchases since May 2017. About $10b of that was from hedge funds as they fall under the ‘Cayman Islands’ locale. The Chinese added to their inventory of notes and bonds, buying $15b worth and net of their tbill holding runoff, they added a net $8.5b of Treasuries. The early 2017 bottom in buying coincided with a bottom in their FX reserves. Here is a chart of Chinese holdings.
China & Hedge Funds Buy US Treasuries As Japan Dumps & Fed No Longer Buys!
The Japanese on the other hand continued to sell, another $6.3b worth bringing their holdings of US Treasuries to the lowest since December 2011. The cost of hedging has overwhelmed any yield pick up between JGB’s and UST’s.
Bottom line, with exploding budget debts and deficits and the Fed no longer buying, it is obvious we need all the buying help we can get and at least this year so far, we’ve gotten some assistance from foreigners. To quantify, the Fed was on track to reduce its balance sheet by a total of $40b in January and February and net foreign buying of UST’s totaled $51.6b in the first two months of 2018.
King World News note: Rising interest rates into a massive global debt load is a recipe for disaster. It’s just a question of when the shocks to the global financial system will come — tick-tock, tick-tock.
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ALSO RELEASED: IMPORTANT UPDATE: Gold & The Mining Shares Preparing To Blastoff! CLICK HERE TO READ.
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