Monday Morning Kickoff

A shortened week didn’t stop the S&P500 from moving higher by 2.3% and record highs. Of course thinly traded markets can move readily in either direction–plus there is no reason to believe that common stocks will be moving lower anytime soon as adequate liquidity remains available.

The 10 year treasury moved higher by 9 basis points from the previous Friday closing at 1.49%. Of course each week brings us closer to the time when there will be no Federal Reserve support in the form of QE. As higher interest rates and less QE take place on a global basis we have potential for a real interest rate shock with a move of the 10 year to the 1.75%-2.00% area. Of course we have looked for higher rates for literally years and markets have made fools out of all the ‘experts’ in this regard.

The Federal Reserve balance sheet shot higher by $92 billion–very interesting. I assume this is a timing issue. As noted by some of the readers watch what the Fed does – not what they say.

Last week the average $25/share baby bond and preferred stock continued on a flattish trajectory as the average share moved just 6 cents higher. Investment grade issues moved 15 cents higher while bank issues moved 5 cent higher mREIT preferreds up 3 cents.

With the shortened holiday week we had NO new issues priced last week. I wouldn’t be a bit surprised to see nothing new announced this week as well.

2 thoughts on “Monday Morning Kickoff”

  1. The fed reinvests interest payments from agency mbs purchases for example. So while they are tapering… the amount of interest they get is being used to buy more so the amount bought is still quite high. Here is an example and the sites below. So even though agency was 40B bought a couple of months ago and now 30B… that reinvestment this month was huge.

    Plus I dont see such a high raise. Maybe my data is not as up2date as yours. I would not expect the balance sheet to fall anywhere near as fast as we might think.

    “December 14, 2021 – January 13, 2022

    The Desk will purchase approximately $84.6 billion over the noted monthly period, including approximately $30 billion of purchases to increase SOMA holdings of agency MBS, and $54.6 billion in reinvestments of principal payments from agency MBS and agency debt. The next release of tentative purchase amounts in agency MBS will be at 3 p.m. on January 13, 2022.”

    https://www.newyorkfed.org/markets/ambs/ambs_schedule
    Here is the treasury schedule.
    https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/treasury-securities/treasury-securities-operational-details
    total balance sheet
    https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm

    I can be wrong. I often am wrong. I just try to keep up! Corrections welcome.

  2. Thanks, Tim.

    Hope everyone had a good Christmas. Also wishing for good health and prosperity in the New Year.

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