Interesting piece on how Gov. Quarles may be going after hedge funds because of their impact on the Treasury market. A key concern is treasury yields will get so low it will cause the treasury market to breakdown. (1/3) ft.com/content/c7ee55…
From the piece: "When the 10-year gets close to zero, transaction costs will keep even the big banks from making any margin by buying Treasuries. Then the system breaks down. Maybe just after Election Day. Nobody is sure." These concerns are similar to BoJ's for YCC (2/3)
The BoJ actually used YCC to steepen the yield curve and keep financial intermediation alive in Japan.That is, it kept the 10-year Japan yield propped up! sipa.columbia.edu/academics/caps…. Be interesting if Fed was forced to do YCC for this reason rather than as a stimulus tool (3/3)
