I wanted to highlight one trend that I glossed over on Monday, namely that foreign demand for long-term Treasuries has disappeared over the last few months.
This is a problem. But the Fed is going to solve it. From a Federal Reserve press release….
To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.
Buying agencies is old hat. The Federal Reserves started doing that around the same time foreign central banks stopped buying them. It is the long dated treasuries that are new. The Belmont Club has a round up of how various newspapers are reacting to this news.
What will the effects of this be? The Times reports in a different context….
The Bank of England believes that it may take “many months” before the full benefits of its radical strategy of creating new money to boost the economy will be felt, it emerged today.
The same could be said for any negative effects.