Fixed Income

Clearly by waiting until the market indicated the correct position we dodged a mega-bullet: the biggest single day move in Treasuries since 1962 on Wednesday. How significant is the announcement from the Fed? Have they effectively sold puts on longer-term Treasuries? The short answer is "yes".

What are the risks of this plan? By strong-arming banks into lending the Fed has basically undertaken to support the entire banking system. The money-printing press is in full swing and that once again encourages bad borrowing. At least bankers memories aren't short enough that they would engage in bad lending....again.

And of course when that war against deflation has been won (and we will not know when) US Treasuries will be revalued a la currencies in a post-Bretton Woods world.