Note: This post first appeared on Patreon on 31 May 2018
This post is a direct response to the politics masquerading as economics embedded in a Bloomberg post about the Fed's interest on excess reserves (IOER). The Bloomberg post is based on the analysis of Credit Suisse analyst Zoltan Pozsar, a former U.S. Treasury adviser.
And the gist of his analysis is encapsulated in the Bloomberg headline, "As Fed Loses Control of Overnight Rates, Blame Shifts to T-Bills". The analysis is all wrong. And it highlights why people lose money trading government bonds using the "Bond Vigilante" paradigm, which the analysis relies upon. If you are in the fixed income markets, you need to get this right.
In normal times, the market is forced to follow the Fed Funds rate because there are no excess reserv...
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Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He has also been a regular economic and financial commentator in print and on television for the past decade. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.