Hostages to Fortune ?
Brad DeLong and Matthew Yglesias report that operation Twist worked, because 30 year bond yields have declined since it was announced.
Brad “30y Treasury yield down 13 bps, 2y yield up 5bps. Exactly what you would expect with announcement of twist operation.” So Brad why were you so sure that the 30y yield would not decrease by 12 or 14 bps ? Do you use “exactly” exactly according to the exact dictionary definition ?
Matt Yglesias also reports that it works. He didn’t type “exactly” and showed a bar graph.
The latest from Bloomberg shows change from last close of +0.03% not -0.13 %
I actually don’t know if this means -0.1 from the announcement or +0.03 from the announcement. I don’t really care. 0.1 % one way or not will make almost no difference.
The answer to the question is no. Yglesias and DeLong did not give a hostage to fortune, because making a big deal about -0.13% is silly no matter what happens later.
OK Brad did say the FOMC did 10% of what it should have done. That is giving a hostage to fortune. – 1.3 % sure isn’t enough but it is significant. +0.35 % not so good. So that is a hostage to fortune hanging from a linear extrapolation.
Possibly irrelvant figure on certainly tiny changes after the jump.
update: The figure shows the 2 days after compared to the day after. So the 30 year yield is lower than it was at the time of announcement. I have trouble with time zones. As I typed before when I didn’t know for sure what day it is. Who cares ?
update II: Good thing I didn’t give any hostages to fortune. The change in the 30 year Treasury bond yield Sep 20 to latest is now -0.4% which sure isn’t negligible.
I don;t have a clue what this might do for Main Street. Anyone care to enlighten me?
STR – I assume it will let you refinance your mortgage lower. I am in the process and will drop form 5 1/8 to 4 1/8 (30 year fixed conforming). The ROI is 10 months. We will keep paying in the same amount but the extra will go straight to reduce the principle – thus dropping the loan payoff by about 10 years why I get the flexibility if I want need those funds elsewhere for an emergency.
The idea is most people won’t save the difference or use it to cut debt ( like I’m doing) but spend it on consumer items. Thus it will help spur the economy through the money multiplier.
You need to ask the real economists what the stars say today for a actual clue though…
Islam will change
i dont know how anyone can quantify the change caused by the announcement…from what ive read, twist had been expected for weeks, and interest rates have been falling in anticipation during that period…
& how much of that was flight to safety, generated by the euro-mess?
I’m refinancing, as are many people with good credit.
The small savings will go into retirement funding (about $100 a month).
Macro impact? Not much.
And that house prices might even propped up a bit….house prices still high here for entry into the market…
Re-fi money and consumer spending certainly less connected…saving mine too for later…already had 4.5 fixed however. No closing costs etc etc (except for home inspection). Bigger banks are going after how much market share in this group?
It’s not just refi people who will benefit; it’s also people who get out of cash and into the short end of the curve.
The drop on the long end is where everyone (DeLong especially included) is concentrating, but the hike in the short end is arguably more important.
Assume (foolishly) that I have $5,000 cash sitting around. I have it as cash because (a) I fear deflation and (b) when the prevailing interest rate offering is 0.02% (doubling time ballparks at 3,500 years), there’s not much benefit to moving it from cash to investment. At the margin, moving to 0.07% (b/e 3,000 years) should get some more cash moving out of mattresses.
The move from (I!=S b/c S>I) closer to I=S is a mitzvah, and more important in facilitating a recovery.
The truth of the tale will be if EXCRESNS declines a bit and/or corporations start putting some of their excess cash to work. (Though the recovery in Business Investment is rather similar to that of the last few recessions, so I doubt that one.)
Update: Over at Barry Ritholtz’s place, James Bianco suggests that “cash on the sidelines” may be no more than usual–so it really is solely an issue of financial institutions holding either (a) excess reserves or (b) loan-loss reserves on which the Fed is paying interest and where both parties know the losses should be realized but haven’t been yet.