Fed Pushes Into ‘Uncharted Territory’ With Record Assets
(Bloomberg) Federal Reserve Chairman Ben S. Bernanke’s unprecedented bond buying pushed the Fed’s balance sheet to a record $3 trillion as he shows no sign of softening his effort to bring down 7.8 percent unemployment.
The Fed is purchasing $85 billion of securities every month, using the full force of its balance sheet to stoke the economic recovery. The central bank began $40 billion in monthly purchases of mortgage-backed securities in September and added $45 billion in Treasury securities to that pace this month.
“We’re in uncharted territory,” said Julia Coronado, chief economist for North America at BNP Paribas SA in New York, and a former Fed economist. Even as “the easy money will flow through financial markets and into the real economy at some point and lift us to a better growth trajectory,” the U.S. faces “a lot of risks,” she said.
The Fed’s total assets climbed by $48 billion in the past week to $3.01 trillion as of Jan. 23, according to a release from the central bank yesterday in Washington. The announcement came as the Standard & Poor’s 500 Index closed at the highest level since December 2007...
/... http://www.bloomberg.com/news/2013-01-25/fed-pushes-into-uncharted-territory-with-record-assets.html
Bank of America issues `bond crash' alert on Fed tightening fears
The US lender said investors face a treacherous moment as central banks start fretting about inflation and shift gears, threatening a surge in bond yields.
This happened in 1994 under Federal Reserve chief Alan Greenspan when yields on US 30-year Treasuries jumped 240 basis points over a nine-month span, setting off a “savage reversal of fortune in leveraged areas of fixed income markets”...
...Most emerging markets now raise debt in their own currency but the effect of a worldwide tightening cycle could expose a host of problems. “Frontier markets are attracting tremoundous capital inflows and this new carry trade could reverse quite violently. The risk of local bubbles bursting is high,” said Mr Hartnett.
Bank of America said the “Great Rotation” under way from bonds into equities closely tracks the pattern of 1994, with bank stocks leading the way.
Over the past seven years US investors have pulled $600bn from US equity funds and poured $800bn instead into bond funds. This process is going into reverse. Equity funds have drawn $35bn over the last 13 trading days alone, creating the risk of an unstable “melt-up” in stocks over coming months...
/... http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9825363/Bank-of-America-issues-bond-crash-alert-on-Fed-tightening-fears.html
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