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How Liquid Is the New 20-Year Treasury Bond? (Liberty Street Economics, 8 min read) The trading frequency, trading volume and trade size of this new issue remains lower than the 30-year. In terms of liquidity, the bid-ask spread is also wider than the 30-year bond, and order book depth too is lower, averaging around $11 million (vs 19 million 30-year). Nonetheless, the bid-ask spread has shown signs of tightening in May, which could be a sign of improving liquidity and trading conditions going ahead.
Falling Real Yields Suggest Gold Price Will Continue to Rise (The Capital Spectator, 5 min read) Gold will continue to have upside momentum since downside pressure on the real yield is still strong due to extremely dovish Fed policies. Correlation between 10-year TIPS (a proxy for real yield) and gold has risen from 0.59 in 2019 to 0.75 this year (based on rolling 10-day changes). [Bullish Gold]
Macroprudential Policy and COVID-19: Restrict Dividend Distributions to Significantly Improve the Effectiveness of the Countercyclical Capital Buffer Release (Vox EU, 12 min read) Banks in the euro area have historically favoured income adjustments over dividends restrictions during economic recessions. These countercyclical dividend payout ratios place a strain on capital positions precisely when they are at their weakest. In this column, a senior ECB expert shows how curtailing bank dividends during economic downturns can improve the effectiveness of macro-prudential buffers, ensuring households and corporations can access funds during the COVID-19 crisis.