2 min readCoronavirus While domestic economic growth began the year on solid footing, the worldwide spread of the coronavirus along with its effects on global supply chains and potential effects on aggregate demand are likely to dominate financial market movements through springtime. U.S. equity markets sank 15% last week in the fastest ever return to correction territory…
2 min readMonetary Policy Report In its semi-annual report to Congress submitted earlier this week, the FOMC stated that “The U.S. economy continued to grow moderately last year and the labor market strengthened further. With these gains, the current expansion entered its 11th year, becoming the longest on record.” The report noted that inflation remains below the…
4 min readThe 2019 mid-September liquidity squeeze in overnight repo markets was perhaps the single most noteworthy event in the cash markets last year. As we noted at the time, the event posed major questions about the post-crisis banking regime and its impact on banks’ ability to lend out reserves. It also asked important questions of the…
14 min readDOWNLOAD FULL REPORT Abstract We identify three themes to watch for cash investors each year. For 2020, we comment on the Fed’s neutral stance, the continued non-solution for repo market liquidity, and the popularity of ESG (environmental, social and governance) investing. Introduction At the start of each year, we typically name three broad themes that…
12 min readDOWNLOAD FULL REPORT Abstract The pause by the Fed after three rate cuts removes some near-term uncertainty for short-term interest rates. On balance, we think the economy faces more headwinds than tailwinds, and thus the probability of further cuts is significant enough to warrant some portfolio readjustment. A yield curve that is no longer inverted…
4 min readIn a move that surprised no one, the Federal Open Market Committee (FOMC) cut rates by 25 basis points at its October meeting, the third cut in as many months. The current Federal Funds rate range now lies at 1.50%-1.75%, still relatively high compared to short-term rates in other G8 economies and still well off…
19 min readDOWNLOAD FULL REPORT Abstract Rather than dismissing September’s repo turbulence as stemming from idiosyncratic events easily rectified by the Fed, we think that the event reveals broader vulnerabilities within the hidden plumbing of our financial system. Although not all institutional cash portfolios directly use repo, this squeeze should concern us all. We don’t think there…
5 min readThis past week saw some nearly unprecedented chaos in repo markets. Beginning late Monday and extending into Tuesday morning, funding in overnight cash markets essentially dried up, sending investors scrambling for liquidity. This resulted in a surge in repo rates for those who did transact, with overnight rates jumping from the low-to-mid 2% range to…
7 min readIt’s been widely publicized that Federal Reserve Chairman Jerome Powell has come under pressure from the White House to pause rate hikes for fear of straining the economy. More recently, there have been allegations that balance sheet reduction is in part to blame for the volatility that shook markets in December. At the same time,…
4 min readAbstract Jerome Powell is the new Chair of the Federal Open Market Committee (FOMC) following Janet Yellen’s retirement from the Fed. In the near-term, Powell is likely to continue on the projected path of gradual interest rate hikes while also focusing on transparency and deregulation. However, as his background is not in economics, he will…