The Residential Real Estate Crash Index Message Board

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Strategies & Market Trends : The Residential Real Estate Crash Index

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To: Mike Johnston who wrote (31529)	5/19/2005 11:37:30 AM
From: GraceZ	Read Replies (1) of 306849

The Fed is not intervening in the long bond market. Long ago they learned that lesson, that they need the long end to be governed by the free market because it is the most reliable indicator of inflation expectations. They do all their intervention in the short (they need to learn that lesson all over again). Long rates are falling precisely because by raising short rates they've effectively killed off inflation expectations (notice I say expectations, not inflation). But more than their fiddling with the FF, the rise in oil prices has ushered in lower inflation expectations because it raises the likelihood of a recession. Plus, you have to understand that the majority of the Tbond buying is being done by CBs from a country where they've suffered through more than 10 years of deflation and falling or moribund interest rates. For them, buying bonds looks like the prudent thing to do. Most alive here in the US have only ever known inflation, so while their actions seem bizarre to us, they make sense in terms of the Japanese experience.

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