Gero Jung, chief economist at Mirabaud Asset Management
“We think this is too early, given the insistence of the Fed to focus on ‘hard’ economic data and not expectations for improvement,” said Jung. “In our view, the Fed wants to see a sequence of very positive data — like the March jobs numbers — before starting to initiate a tapering process.”
Lynn Reaser, economist at Point Loma Nazarene University
“The Fed is turning increasingly bullish on the economy, but it still views any thoughts of hinting at a future tightening as premature,” Reaser said.
Scott Brown, chief economist at Raymond James Financial Inc
“The Fed’s revised monetary policy framework, unveiled last summer, is significantly different from the past, where the Fed would tighten policy preemptively to head off inflation,” said Brown.
Joel Naroff, president of Naroff Economics
“The Fed could raise rates sooner than expected if a major infrastructure bill is passed,” said Naroff. “That would secure solid growth well past the time the stimulus runs out and make it unnecessary to keep rates so low.”
“It’s not that the market has become inflationist. It’s that the market is uncertain,” said Riley. “If the market was really pricing inflation being sustained above the Fed target through next year and beyond, I think [yields] would be meaningfully higher,” he said.
Dan Krieter, interest rates strategist at BMO Capital
“When we were all talking about the SLR [supplementary leverage ratio] a couple of months ago, we were worried that the exemptions will expire… and banks would sell Treasuries, but the SLR (exemption) went away, and we didn’t really see significant selling pressure,” said Krieter. “The Fed has also hinted heavily at a permanent tweak to SLR calculations that likely prevented any large selling of Treasuries,” Krieter said. “Funding a portfolio of bank reserves and Treasuries with unsecured bank debt is likely a negative arbitrage proposition,” said Krieter.
“Interest on reserves don’t earn much and they earn less than what you’re paying for the debt that funds it.” “To maintain a certain SLR, you might sell Treasuries and then presumably buy them back at a higher market price once the permanent exemption comes,” Krieter said. “In this example, you’re paying the full bid/ask spread on a Treasury portfolio worth tens of billions of dollars.”
Patrick Leary, chief market strategist and senior trader at broker-dealer Incapital
“From my understanding, there weren’t many banks that have been using the SLR exemption on their Treasury holdings anyway,” said Leary.
On Huarong bonds diving despite April repayments following Fitch rate cut – in a statement by Fitch Ratings
“The government may continue to have a high incentive to provide extraordinary support, considering China Huarong’s policy role and the potential contagion risk for the refinancing of similar policy-driven GREs, but Fitch believes timely indication of support has not yet materialized.” There is “increasing uncertainty over the company’s liquidity, particularly its offshore funding,” Fitch added.
“If the ‘distressed-asset’manager becomes itself distressed, it is reasonable to cast doubt on the vulnerability of the financial system,” ANZ Research said.
“They’re in a difficult position,” Loyola. “They’re waiting to see what the scenario will bring, if this pace of tightening is enough to anchor inflation expectations.” “That doesn’t spell anything good for Brazil, as we know both are incapable of managing” the country, he said. “Brazil needs to reinvent itself politically to win over investors.”