The U.S. Treasury Department announced on Wednesday it would begin issuing floating rate notes (FRNs), even if such a new program is at least a year away from implementation. The rationale behind these short-term securities is to give investors protection against the possibility of a sudden spike in interest rates. The Federal Reserve has held overnight rates near zero since late 2008, helping to anchor borrowing costs of all maturities.
It’s already been established that economists’ predictions about the euro zone’s future hinge largely on where their employer is based. Euro zone optimists tend to work for euro zone banks and research houses, and euro zone sceptics for companies based outside the currency union.
German Bund futures have just had their second straight week of losses. This has left many scratching their heads given the timing – right before Greek elections that could decide the country’s future in the euro and the next phase of the euro zone debt crisis. That sort of uncertainty would normally bolster bunds, which are seen as a safe-haven because of the country’s economic strength.
The law of diminishing returns?
The first euro zone bailout, of Greece, bought a few months of respite, the next ones bought weeks, latterly it was days. Now … hours. Spanish bond yields ended higher on the day and, more worryingly, Italy’s 10-year broke above six percent. It was always unlikely the deal to revive Spanish banks was going to lead to a durable market rally with make-or-break Greek elections looming on Sunday but there were other things at play.
from Mike Dolan:
Just one look at the whoosh higher in global markets in January and you'd be forgiven smug faith in the hoary old market adage of "Don't fight the Fed" -- or to update the phrase less pithily for the modern, globalised marketplace: "Don't fight the world's central banks". (or "Don't Battle the Banks", maybe?)