Why ‘trade’ weighted? What is the economic logic behind that move? Cross-sectional comparisons of LT-govt bond yields adjusted by a BoP measure seems non-intuitive, even eccentric, to me. Why wouldn’t you simply weight the yields by each country’s net public debt-to-GDP or, better still, PSBR or Net Financing Needs as a percent of GDP? Wouldn’t that convey the notion of fiscal density and its cost more naturally? And wouldn’t this also partially—though only partially— solve the problem posed individual EA economies?
Bond rates are partly determined, as to direct influences, by central bank and Treasury decision making rather than by "the fundamentals" in isolation. So to my mind, to get a message out of what you are saying is that we see in bond coupons and market yields central bank responses to exchange rate issues.
Just to clarify, putting aside fiscal space for a moment and looking at "financing space":
This Treasury financing space is significantly narrowed by high IORB rates (as well as the associated RRP rate), a rate solely set by central banks, not at all a market rate, that is.
In a plentiful reserve framework (in the U.S., > 70 billion), if, for instance, the IORB rate is set at zero, the overnight rate between banks is also roughly zero, since rates are set by scarcity, and outside of the scarce reserve framework, reserve balances are not scarce, but, rather, useless, where the IORB rate is zero. As T-bill rates follow the overnight rate, those rates are also near zero. The Treasury needs not issue anything but T-bills, of course, and if so, in this scenario, Treasury financing is zero cost to the Treasury. But also, simply by *the Treasury* shifting the ratio of long bonds issued to T-bills issued even somewhat in favor of T-bills, by scarcity issued, the price, by supply and demand, of long bonds (20yr, 30yr) rises (has an upwards influence on it), dropping bond rates (or the same could be said for the notes).
Still waiting to hear how there can be record unhedged FX inflows into USD based equities while the dollar continues to drop. How can that be possible?
Why ‘trade’ weighted? What is the economic logic behind that move? Cross-sectional comparisons of LT-govt bond yields adjusted by a BoP measure seems non-intuitive, even eccentric, to me. Why wouldn’t you simply weight the yields by each country’s net public debt-to-GDP or, better still, PSBR or Net Financing Needs as a percent of GDP? Wouldn’t that convey the notion of fiscal density and its cost more naturally? And wouldn’t this also partially—though only partially— solve the problem posed individual EA economies?
My apologies Robin,
Your data is very questionable around US and Europe, I am not buying this narrative at all.
Why is it questionable? https://g.co/gemini/share/96c39e12b90e
Bond rates are partly determined, as to direct influences, by central bank and Treasury decision making rather than by "the fundamentals" in isolation. So to my mind, to get a message out of what you are saying is that we see in bond coupons and market yields central bank responses to exchange rate issues.
Just to clarify, putting aside fiscal space for a moment and looking at "financing space":
This Treasury financing space is significantly narrowed by high IORB rates (as well as the associated RRP rate), a rate solely set by central banks, not at all a market rate, that is.
In a plentiful reserve framework (in the U.S., > 70 billion), if, for instance, the IORB rate is set at zero, the overnight rate between banks is also roughly zero, since rates are set by scarcity, and outside of the scarce reserve framework, reserve balances are not scarce, but, rather, useless, where the IORB rate is zero. As T-bill rates follow the overnight rate, those rates are also near zero. The Treasury needs not issue anything but T-bills, of course, and if so, in this scenario, Treasury financing is zero cost to the Treasury. But also, simply by *the Treasury* shifting the ratio of long bonds issued to T-bills issued even somewhat in favor of T-bills, by scarcity issued, the price, by supply and demand, of long bonds (20yr, 30yr) rises (has an upwards influence on it), dropping bond rates (or the same could be said for the notes).
Still waiting to hear how there can be record unhedged FX inflows into USD based equities while the dollar continues to drop. How can that be possible?
Thanks Robin for your perapectives. Question, Swiss differential is also negative, does that mean the CHF is as weak as the ¥?
But all these places “finance” usa? How does it work