Fed Using War Finance to Battle Covid, BlackRock’s Rosenberg Says

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are bonds the right hedge anymore for your portfolio do you have to look to gold instead yeah you know let me let me talk about the bond side and then i’ll try to get back to the gold question as well you know the other thing investors have to talk have to recognize when when listening to to chair powell here you know he got the question about you know is the is the depression the right historical analogy and he answered no and i completely agree it’s not the depression that is the right historical analogy it’s world war ii just go forward a decade and what it is is covid is like a war and or fighting covet is like fighting a war and so the fed is using wartime finance and the structure of the fixed income markets is a reflection of the structure of monetary policy and monetary policy structure has now completely changed yeah we’re going to get more going forward about the deliberations that happened today which is really kind of the important part well back in world war ii the fed controlled interest rates today we talk about it with this fancy term yield curve control but basically the fed says we’re going to cap or determine interest rates back in world war ii it’s two and a half percent of the long bond it’s three-eighths of a percent in in the short end and that means that the fixed income market with levels of interest rates where they are today will you have declining yields when stocks fall the next time yes but they’re not going the fed policy is not going below zero so there’s a limit to have okay but jeff i want to interrupt 60. jeff i want to get this question in because what you just said is the heart of the matter i know mike mckee’s got an important question too jeff rosenberg i’m seeing massive log convexity even though it’s ever so sliding on the bloomberg terminal it’s a real nuanced vote jeff i’m seeing a price urgency to the two-year yield somebody is buying that paper who is buying it and who precludes it from moving ever closer to the zero bound well you know i i wouldn’t i wouldn’t worry too much about the two-year and the two-year moves it’s it’s pretty much a reflection of the expectations that over the next three years which is the fed’s forecast scenario they are going to keep interest rates between zero and 25 basis points that’s where the two year is settling that’s where the three year is settling the five year is pretty close to that so basically the entire short end of the yield curve is pegged at the expectations as i was just articulating we’re going to be in this policy for a very long time

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