\n
FOMC extended Operation Twist until the end of 2012, and is ready to launch QE3 if labour market conditions do not improve. <\/p>\n
As expected, The FOMC has announced new monetary stimulus, through the extension of Operation Twist (OT2) and of the reinvestment policy for principal and coupons of agency debt and MBS until the end of 2012. \u2026.<\/p>\n
<\/p>\n
Sign up for our free newsletter to receive weekly news from BONDWorld For professional investors and advisers only<\/strong><\/p>\n While the economic outlook is still consistent with a moderate recovery, employment growth has slowed, and the unemployment rate remains high, as opposed to a more optimistic assessment of the labour market in April. <\/strong>This was the difference prompting the change in the FOMC\u2019s stance and its decision to act. Otherwise, the assessment of aggregate demand and prices changed very little. As expected, macroeconomic projections were revised downwards, rather sharply over the 2012-2013 horizon (see below). Projections of official rates were left unchanged, and the statement confirmed that rates will probably remain exceptionally low \u201cat least through late 2014\u201d, as previously indicated.<\/p>\n The maturity-extension programme will be continued until the end of 2012, two quarters beyond the original expiration date.<\/strong> The Fed will purchase securities with a residual life of between 6 and 30 years, while selling an equal amount of securities maturing between 0 and 3 years, at the same pace adopted since OT was put in place. Also, the policy of reinvesting coupons and principal payments from its holdings of agency debt and MBS will continue. Reinvestment of Treasuries, instead, will be halted. The extension of OT will generate sales and purchases around 267 billion dollars by the end of 2012. Purchases will be distributed as illustrated in the Table below, barring changes dictated by market conditions. At the end of each month, the NY Fed will continue to publish an tentative calendar for the following month. On average, securities will be bought and sold each month for a total of around 44 billion dollars.<\/p>\n The FOMC statement concludes with the commitment that the Fed is prepared to take further action as appropriate to promote a stronger economic recovery and \u201csustained improvement in labour market conditions\u201d<\/strong>. The Fed will continue to monitor the adjustment of the labour market, and the June decision will allow the central bank to assess political and fiscal policy developments in the autumn, and to prepare effective actions in case of need.<\/p>\n During his press conference, Bernanke reasserted the Fed\u2019s commitment to contribute to a rebalancing of the labour market, signalling that against a background of forecast inflation below the 2% target, the Fed will set policy by focusing on growth and employment. Bernanke said that the Fed \u201cstill has ammunition\u201d, and \u201cif we don’t see further improvement in the labor market, we will be prepared to take additional steps\u201d. Labour market adjustment and overall growth prospects will remain the most reliable compass to forecast the course of US monetary policy in the next quarters. A worsening of labour market conditions may call for additional intervention even before the end of OT2. This message will contain any potential appreciation of the dollar, even in the face of the euro crisis, and keep long-term yields close to current levels. Finally, we know that the Fed is worried about incomplete transmission of monetary policy from Treasury yields to risk assets and mortgage rates. Any instances of a deterioration of the economic picture would trigger purchases of securities other than Treasuries.<\/p>\n As for the OT2 effects, analyses conducted by the Fed and the BIS show that on average the QE and OT programmes have shifted the yield curve downwards by around 15-20bps. The effects on real rates, though, are reduced by slower expected inflation. The announcement of a round of QE3 is possible in the autumn, in our view.<\/p>\n Appendix Analyst Certification<\/strong> Important Disclosures<\/strong> Source: BONDWorld – Intesa Sanpaolo \u2013 Research Department<\/p>\n","protected":false},"excerpt":{"rendered":" FOMC extended Operation Twist until the end of 2012, and is ready to launch QE3 if labour market conditions do not improve. As expected, The FOMC has announced new monetary stimulus, through the extension of Operation Twist (OT2) and of the reinvestment policy for principal and coupons of agency debt and MBS until the end […]<\/p>\n","protected":false},"author":2,"featured_media":3455,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"telegram_tosend":false,"telegram_tosend_message":"","telegram_tosend_target":0,"footnotes":"","_wpscp_schedule_draft_date":"","_wpscp_schedule_republish_date":"","_wpscppro_advance_schedule":false,"_wpscppro_advance_schedule_date":"","_wpscppro_dont_share_socialmedia":false,"_wpscppro_custom_social_share_image":0,"_facebook_share_type":"","_twitter_share_type":"","_linkedin_share_type":"","_pinterest_share_type":"","_linkedin_share_type_page":"","_instagram_share_type":"","_medium_share_type":"","_threads_share_type":"","_google_business_share_type":"","_selected_social_profile":[],"_wpsp_enable_custom_social_template":false,"_wpsp_social_scheduling":{"enabled":false,"datetime":null,"platforms":[],"status":"template_only","dateOption":"today","timeOption":"now","customDays":"","customHours":"","customDate":"","customTime":"","schedulingType":"absolute"},"_wpsp_active_default_template":true},"categories":[50],"tags":[],"class_list":["post-1054","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-weekly-analysis"],"blocksy_meta":{"styles_descriptor":{"styles":{"desktop":"","tablet":"","mobile":""},"google_fonts":[],"version":6}},"_links":{"self":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/posts\/1054","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/comments?post=1054"}],"version-history":[{"count":0,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/posts\/1054\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/media\/3455"}],"wp:attachment":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/media?parent=1054"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/categories?post=1054"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/tags?post=1054"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
Click here to register for your free copy<\/strong><\/a> <\/strong><\/a> <\/p>\n
\n
\n
\n
<\/strong> <\/p>\n
The financial analysts who prepared this report, and whose names and roles appear on the first page, certify that: (1) The views expressed on companies mentioned herein accurately reflect independent, fair and balanced personal views; (2) No direct or indirect compensation has been or will be received in exchange for any views expressed. Specific disclosures: The analysts who prepared this report do not receive bonuses, salaries, or any other form of compensation that is based upon specific investment banking transactions.<\/p>\n
This research has been prepared by Intesa Sanpaolo S.p.A. and distributed by Banca IMI S.p.A. Milan, Banca IMI SpA-London Branch (a member of the London Stock Exchange) and Banca IMI Securities Corp (a member of the NYSE and NASD). Intesa Sanpaolo S.p.A. accepts full responsibility for the contents of this report. Please also note that Intesa Sanpaolo S.p.A. reserves the right to issue this document to its own clients. Banca IMI S.p.A. and Intesa Sanpaolo S.p.A. are both part of the Gruppo Intesa Sanpaolo. Intesa Sanpaolo S.p.A. and Banca IMI S.p.A. are both authorised by the Banca d’Italia, are both regulated by the Financial Services Authority in the conduct of designated investment business in the UK and by the SEC for the conduct of US business.
Opinions and estimates in this research are as at the date of this material and are subject to change without notice to the recipient. Information and opinions have been obtained from sources believed to be reliable, but no representation or warranty is made as to their accuracy or correctness. Past performance is not a guarantee of future results. The investments and strategies discussed in this research may not be suitable for all investors. If you are in any doubt you should consult your investment advisor.
This report has been prepared solely for information purposes and is not intended as an offer or solicitation with respect to the purchase or sale of any financial products. It should not be regarded as a substitute for the exercise of the recipient\u2019s own judgement.
No Intesa Sanpaolo S.p.A. or Banca IMI S.p.A. entities accept any liability whatsoever for any direct, consequential or indirect loss arising from any use of material contained in this report.
This document may only be reproduced or published together with the name of Intesa Sanpaolo S.p.A. and Banca IMI S.p.A.. Intesa Sanpaolo S.p.A. and Banca IMI S.p.A. have in place a Joint Conflicts Management Policy for managing effectively the conflicts of interest which might affect the impartiality of all investment research which is held out, or where it is reasonable for the user to rely on the research, as being an impartial assessment of the value or prospects of its subject matter. A copy of this Policy is available to the recipient of this research upon making a written request to the Compliance Officer, Intesa Sanpaolo S.p.A., 90 Queen Street, London EC4N 1SA.
Intesa Sanpaolo S.p.A. has formalised a set of principles and procedures for dealing with conflicts of interest (\u201cResearch Policy\u201d). The Research Policy is clearly explained in the relevant section of Banca IMI\u2019s web site (www.bancaimi.com).
Member companies of the Intesa Sanpaolo Group, or their directors and\/or representatives and\/or employees and\/or members of their households, may have a long or short position in any securities mentioned at any time, and may make a purchase and\/or sale, or offer to make a purchase and\/or sale, of any of the securities from time to time in the open market or otherwise. Intesa Sanpaolo S.p.A. issues and circulates research to Qualified Institutional Investors in the USA only through Banca IMI Securities Corp., 245 Park Avenue, 35th floor, 10167 New York, NY,USA, Tel: (1) 212 326 1230. Residents in Italy: This document is intended for distribution only to professional investors as defined in art.31, Consob Regulation no. 11522 of 1.07.1998 either as a printed document and\/or in electronic form. Person and residents in the UK: This document is not for distribution in the United Kingdom to persons who would be defined as private customers under rules of the FSA.
US persons: This document is intended for distribution in the United States only to Qualified Institutional Investors as defined in Rule 144a of the Securities Act of 1933. US Customers wishing to effect a transaction should do so only by contacting a representative at Banca IMI Securities Corp. in the US (see contact details above).
Valuation Methodology<\/strong>
Trading Ideas are based on the market\u2019s expectations, investors\u2019 positioning and technical, quantitative or qualitative aspects. They take into account the key macro and market events and to what extent they have already been discounted in yields and\/or market spreads. They are also based on events which are expected to affect the market trend in terms of yields and\/or spreads in the short-medium term. The Trading Ideas may refer to both cash and derivative instruments and indicate a precise target or yield range or a yield spread between different market curves or different maturities on the same curve. The relative valuations may be in terms of yield, asset swap spreads or benchmark spreads.
Coverage Policy And Frequency Of Research Reports<\/strong>
Intesa Sanpaolo S.p.A. trading ideas are made in both a very short time horizon (the current day or subsequent days) or in a horizon ranging from one week to three months, in conjunction with any exceptional event that affects the issuer\u2019s operations. In the case of a short note, we advise investors to refer to the most recent report published by Intesa Sanpaolo S.p.A\u2019s Research Department for a full analysis of valuation methodology, earnings assumptions and risks. Research is available on IMI\u2019s web site (www.bancaimi.com) or by contacting your sales representative.<\/p>\n