Global Central Banking

The Fed Chairman outlined the monetary policy projection for the US for the umpteenth time yesterday. After 6 weeks of the Pundocracy complaining of "mixed messages", the Chairman spoke real slow as he once again repeated their consistent take on policy.

The talk was significant in our view because the rhetoric was timed to smooth foreign markets as much as domestic. The capital flight from EM nations has been massive. The evaporation of foreign reserves was a significant jolt to real rates here. Brazil raised the Selic Rate again and outlined a path of hikes into year end. India held the rate but put controls on futures and options trading and banned banks from the activity. Indonesia hiked as capital has fled at an alarming pace. The Fed is watching this closely.

Ten year yields in the US are falling from the Employment Report spike. Once again, the mortgage boys made a mess at the lows. A healthy functioning market would see practitioners short earlier to cover on forced MBS selling as convexity coupon triggers were crossed. That is not what we have at present but we are seeing signs of improvement from last month's seizures. The early craziness could morph into nasty Summer Doldrums. Convergence plays, many of which hit historic wides last week, could become the only sleepy game around.

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