Stabilization of balance seems legitimate

The last operation in the US Federal Reserve bonds redemption shall not exceed $ 2 billion today. A drop of water to the 123 billion of (gross) debt issued this week by the Treasury. However this imbalance will grow in the coming months: the Federal Reserve will intervene more and debt raising announce dizzy. Treasury will specify the amounts in early November, but according to the latest forecasts, more than 400 billion of securities will be issued in the last quarter in net, i.e. taking into account refunds. Net debt represents what the market is "really" Digest, consumed once liquidity which have been made.

"In relying on the criterion of the net amounts, we see that the support of the Federal Reserve to the bond market has been significant since the implementation of its programme of $ 300 billion, end of March", recognizes Cyril Regnat, at Natixis. The Federal Reserve bought 44 of total emissions of borrowing of us state in the second quarter and almost 30 in the third.

Yet, despite this contributor to weight, American State bonds rates rose: the performance of the 10 years stretched 90 basis since March 17 points, before the announcement of the Federal Reserve. On the new, the rate fell close to 50 points in one day. It is currently evolving to 3.4. His rise is primarily to the improvement of economic prospects and, more recently, to fears of a future increase rates and "exit strategies" crisis.

The question now is if the place left by the Federal Reserve will be occupied by other stakeholders, who will buy the dumpers of titles expected, or if the rates are poised to rise strongly. "Slight ascent of savings, both households and businesses, has helped to maintain low rates", said Stephen Gallagher, for Société Générale. And to add that the financial sector has also played a leading role. "But there is still a risk that the passage of relay between the Federal Reserve and the private and foreign investors is not so easy," judge the Economist for Société Générale. Considers also that should that demand for these investors increased 65 to fully compensate for the withdrawal of the Federal Reserve, if emissions continue at the same pace. The support of individuals appears to be too fragile to endorse such a surplus. In the end, the fate of the bond market is more and more in the hands of financial institutions.

Beyond the direct effect on the market of State, the device has had other consequences. It was also intended to "promote the improvement of the conditions in the private debt markets", said the Federal Reserve. Including mortgage credit, where the rise in rates was contained 5, currently on the 30 year fixed. "By launching these measures, the authorities have also wanted play on the expectations of the operators and create a favourable psychological shock," said Philippe Waechter at Natixis AM.

Paradoxically, this exceptional device also promoted a standardization of the Central Bank's balance sheet. "At the beginning of the crisis, the Federal Reserve had to tap into its stock of government bonds to redeem risky securities, said Philippe Waechter." With the purchases made since March, she returned to its normal level of government borrowing $ 800 billion. "Stabilization of balance seems legitimate. The Federal Reserve on the other hand will determine what it is all accumulated in recent months mortgage-backed securities.