The whole of global markets witnessed panic reaction in response to US FED announcement. US FED announcement technically means switching (buying ) to long dated securities by selling short dated securities. It is a really classical central bank response to revive economy by management of interest rates. (Remember it is supported by 7 out of 10 in the committee)
Long interest rates will come down and short term yield will remain stagnant as more or less securities devoid of coupon payments align to short term interest rates and price appreciation may not be much on those securities. Whereas long yield coming down is signalling of lower long interest rates which should give impetus to capital borrowing and related economic growth. Our own RBI also adopts this often but due to our governmental policies, it's effectiveness is diluted. The panic reaction may be due to some of the statements of FED wherein it stated "significant downside economic risk remains" and probably due to currency fluctuations. The measures are expected to strengthen USD and it is evident from last night itself with dollar index shooting and INR depreciating from 48 to 49.81 levels. (I have not checked latest levels when i am writing this)..which is terrific depreciation and am sure it is going upset RBI and Government calculations too. Strengthening dollar when Europe is in need of help from US is unfortunate and my guess is may lead to creation of more mess with significant downgrades. So far leaders Germany and France are in support of holding of European Union but may distance themselves gradually allowing for defaults etc., To cut short, it is going to be very very volatile though for a short period...say a month or so. ( aare wah.....you are so sure..yes...because volatile planet activity remains only for one month and then moves to another house....)
BTW, forgot to add by this action, FED is going to reap huge profits and that is really cool. I envy the position of Mr.Ben Bernanke.... I stand in appreciation of this intelligent, cool & calm governor who is just keep doing things silently. There is a lesson for everybody.
Long interest rates will come down and short term yield will remain stagnant as more or less securities devoid of coupon payments align to short term interest rates and price appreciation may not be much on those securities. Whereas long yield coming down is signalling of lower long interest rates which should give impetus to capital borrowing and related economic growth. Our own RBI also adopts this often but due to our governmental policies, it's effectiveness is diluted. The panic reaction may be due to some of the statements of FED wherein it stated "significant downside economic risk remains" and probably due to currency fluctuations. The measures are expected to strengthen USD and it is evident from last night itself with dollar index shooting and INR depreciating from 48 to 49.81 levels. (I have not checked latest levels when i am writing this)..which is terrific depreciation and am sure it is going upset RBI and Government calculations too. Strengthening dollar when Europe is in need of help from US is unfortunate and my guess is may lead to creation of more mess with significant downgrades. So far leaders Germany and France are in support of holding of European Union but may distance themselves gradually allowing for defaults etc., To cut short, it is going to be very very volatile though for a short period...say a month or so. ( aare wah.....you are so sure..yes...because volatile planet activity remains only for one month and then moves to another house....)
BTW, forgot to add by this action, FED is going to reap huge profits and that is really cool. I envy the position of Mr.Ben Bernanke.... I stand in appreciation of this intelligent, cool & calm governor who is just keep doing things silently. There is a lesson for everybody.
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