Is the Fed’s QE tapering plan coming?

Is the Fed's QE tapering plan coming?

According to the minutes of the Federal Reserve meeting released last week, several members began to consider discussing a reduction in quantitative easing. Analyzing the current economic conditions in the U.S. market, several reasons have contributed to the Fed’s imminent tapering of its bond purchase program

The financial situation is stable: credit and liquidity risks are extremely low in the money market.

Vaccinations in major mature countries are going well.

Inflation is currently at a disturbingly high level: the core and headline and goods and services breakdowns show a broad acceleration in inflation.

Labor markets remain strong: the economy has recovered to two-thirds of the jobs lost during the epidemic.

There is excess liquidity in the market: short-term dollar rates, including repo, LIBOR, SOFR and other rates, are generally near historical status.

First, we maintain the 10-year Treasury yield at 2% in 2021, after which it fluctuates between 2 and 2.5%, with a steepening yield curve.

At the same time, we see a case for tapering and believe that conditions for tapering may emerge in the 3rd quarter. We expect the Fed to make adjustments later in the year. Although the Fed will not raise interest rates until 2024, we believe the timing of the rate hike is likely to take place in 2023 after the Fed stops quantitative easing.

Asian credit is less affected by the U.S. QE tapering

Asian credit has been in our portfolio for a long time and we remain bullish on Asian credit markets in assessing current market conditions.

In the United States under the current extremely loose monetary policy, we assess that the dollar is somewhat overvalued, while the valuation side of Asian currencies appear to be undervalued, which also reduces the risk of local currency-denominated Asian debt in subject to rising U.S. debt yields, subject to volatility is more limited.

Asian countries’ own current accounts are mostly in surplus, which also reduces their need for external financing. And among Asian countries, foreign exchange reserves to foreign debt ratio is also more appropriate to prevent the risk of collapse of their currencies.

In addition, even if the Asian credit market has recently faced some bearishness, in the pursuit of income demand, the investment highlights of Asian credit is its strong fundamentals, spread perspective but not expensive, it is recommended that investors allocate Asian high-yield debt at the barbell end when volatility.

The musings behind Bitcoin

Bitcoin’s recent move successfully explains the concept of bifurcation, as it has fallen 40% in the past week after a day of ups and downs of over 30%, and since hitting a high at midday in April.

For bitcoin investors, there are also two camps. For the short side, there is a need to consider that bitcoin’s blockchain technology has indeed revolutionized finance, and that features such as decentralization, security, limited supply and digital nature give bitcoin unique attributes that are almost irreplaceable. For the long side, Bitcoin’s future remains uncertain, with Bitcoin’s scalability, volatility, regulation and geopolitical risks all acting as barriers to its widespread popularity.

As with most new technologies, investor enthusiasm can be an important factor in the formation of asset bubbles, as the 2000 dot-com bubble brought to light. Of course, this does not mean that technology is worthless. There is often a gulf between the value of an idea, and the ability of investors to obtain that value. We advise investors to recognize the value while remaining cautious.

Posted by:CoinYuppie,Reprinted with attribution to:
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