Flat Fed

On 26th of February, 2019 Fed’s chair, Powell testified to Senate Banking Committee and indicated an accommodative monetary policy to be in play now on. Well, here is a classic case of efficient markets. Traders had already priced in the decision that Powell announced yesterday i.e. to pause hiking rates and hold balance sheet runoff which made US markets day ending flat(equity market). However, the 10 year treasury yield dropped a little on confirmation that Fed will be buying more Treasuries in future to maintain its Treasury holdings on its balance sheet .

This doesn’t people weren’t thrilled on this news, they instead displayed that they were expecting this and had already (rationally) adjusted the prices. The same thing happened when Trump announcement postponement of tariffs on china. Markets, after opening higher gave away all the gains by day end.

These are classic cases of Buy the rumor and sell the fact.

(with inputs from Apra Sharma)

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