Let's imagine for a moment, that the bond-market bubble ends and prices start to normalise. We know that it won't take much to create losses that will wipe out the capital of some critically important commercial banks, but we like to think the ECB is on top of this problem. Very few people seem to be are aware of the crisis that falling bond prices would create for the ECB itself. The ECB's equity capital at 31 December 2015 was €7.74bn, supporting a balance sheet of €256.645bn, a gearing ratio of over 33 times. The wider euro-system's accounts, where the asset purchases accumulate, has capital and reserves of €98bn supporting a balance sheet of €2,872bn, a gearing ratio of 29 times and rising. As a rough guide, an interest rate increase of less than two per cent, to as little as one and a half per cent, would undermine the value of bonds and related risks at both the ECB and in the euro-system, to the point where they would require further capital injections. For some context, if the yield to maturity on a five-year bond rises by 2%, the price falls roughly 10%. Now we are getting to the truth as to why the ECB's debt bubble must be sustained. It is no longer to support economic growth. A deflating asset bubble will take down the ECB and the wider euro-system, just as the Mississippi bubble took down Banque Royale. And in both cases, the confidence vested in these institutions is reflected in the purchasing power of the money they have issued.
lol. Yeah it's crazy. Can't last forever. 4 FED members now think a rate hike should be on the table for April. Might be enough to spook markets again. Also, 4th bounce off this 2027-2029 area. If we breach it tonight it should trigger some big stops.
"Open mouth operations"...they are dovish until SPX hits a certain "target" or level that they feel is sufficient and then the hawkish comments follow...Really, this is nothing new, it's been ongoing since the end of QE...they cannot raise rates aggressively enough, so they jawbone the market from all angles..."NIRP" was thrown out quite frequently down at the lows...so what changed between Feb 11th and today that would require a shift from potential NIRP to raising rates again? i.e. nothing more than the price of the S&P 500...