Something I'm struggling to understand is that Michael Howeel and others economists agrees that cutting rates brings more lliquidity to the market and then is bullish for risk asset.
On the other hand, I think that higher interest rates and bond yields means the government deficit spending will continue to grow, increasing liquidity in the economy. This is especially true given the heavy issuance of short-duration treasuries as of late; meaning that re-financing at the higher rates is going to come sooner than if issuance was primarily.
Your toughts? Thank you, Thibault (paid subscriber)
Hi Nick,
Something I'm struggling to understand is that Michael Howeel and others economists agrees that cutting rates brings more lliquidity to the market and then is bullish for risk asset.
On the other hand, I think that higher interest rates and bond yields means the government deficit spending will continue to grow, increasing liquidity in the economy. This is especially true given the heavy issuance of short-duration treasuries as of late; meaning that re-financing at the higher rates is going to come sooner than if issuance was primarily.
Your toughts? Thank you, Thibault (paid subscriber)
there are indeed so many moving parts. i will continue to address in our research!
don't forget the primary result of higher bond yields---lower collateral values (and higher bond volatility), this dampens liquidity
other second-order effects exist as well, including the ones you note