Halyard’s Weekly Wrap – 09-24-21

While Chairman Powell and the Open Market Committee failed to signal a start to tapering open market purchases, they did inch closer. Powel described current economic condition as having mostly met the committees standard to begin to taper and suggested that an announcement would be made at the November meeting. Bond investors didn’t like the news and drove the yield on the 10-year note 15 basis points higher to end the week at 1.45%. It was also announced that the Reverse Repo (RRP) operation designed to sop up excess front end liquidity will be doubled from $80 billion per counterparty to $160 billion. That totals over $12 trillion dollars if every counterparty maxed out the operation! The size of outstanding RRP as of yesterday was $1.35 trillion, a record for the program. We expect that number will grow going into next week’s quarter end and continue to grow through the end of the year.

Away from the U.S. bond market the United Kingdom issued GBP10 billion in “green” bonds this week. The 12-year maturity was wildly oversubscribed, generating GBP100 billion in bids. HSBC reported that the notes came 2.5 basis point below existing UK debt. The U.K. expects to issue another $5 billion in green bonds before the end of the year. To achieve green status, the proceeds will be segregated and only used for uses such as zero-emission buses, off-shore wind power, and other environmentally and socially desired uses. Chancellor of the Exchequer Rishi Sunak said “In helping us build back better and greener, it will also help to create jobs.” To the best of our knowledge, the U.S. does not have a plan to issue green bonds in the near future.

Next week is rife with secondary economic data, but we expect investors will be focused on Congress squabbling over infrastructure spending and the debt ceiling.