BMO.TO - Bank of Montreal
| Previous Close | 99.65 |
| Open | 100.00 |
| Bid | 100.05 x 0 |
| Ask | 100.20 x 0 |
| Day's Range | 99.81 - 100.44 |
| 52 Week Range | 86.25 - 106.51 |
| Volume | 1,176,415 |
| Avg. Volume | 1,910,355 |
| Market Cap | 64B |
| Beta (3Y Monthly) | 1.10 |
| PE Ratio (TTM) | 10.59 |
| EPS (TTM) | 9.45 |
| Earnings Date | Feb. 25, 2020 |
| Forward Dividend & Yield | 4.24 (4.25%) |
| Ex-Dividend Date | 2020-01-31 |
| 1y Target Est | 104.23 |
- The Motley Fool
2 Dividend Aristocrats to Boost Your Passive Income
If you want a stock that will grow its income distributions alongside its share price, check out the Dividend Aristocrats, specifically Bank of Montreal (TSX:BMO)(NYSE:BMO).
- Bloomberg
Bond Traders Trim Bets on 2020 Fed Rate Cut on Jobs Strength
(Bloomberg) -- Treasury yields rose and traders stepped back from fully pricing in a quarter-point rate cut from the Federal Reserve next year after November U.S. job growth trounced expectations.The benchmark 10-year yield rose 3 basis points to 1.84%, and is now up about 7 basis points on the week. The Bloomberg Dollar Spot Index gained 0.2%, putting it on track to halt a five-day slide.The surprising labor-market strength may ease concern that U.S. growth is faltering amid global economic headwinds from the trade war. While traders still see the Fed having to lower borrowing costs, they’re now betting that reduction won’t come until 2021. That’s compared with the second half of 2020 before Friday’s data. Fed officials, for their part, have been signaling they intend to pause after three consecutive rate cuts this year.“In the last month or so, the recession narrative has started to disappear,” said Tony Farren, managing director at broker-dealer Mischler Financial in Stamford, Connecticut. “This completely eliminates it” unless U.S.-China trade talks deteriorate.White House economic adviser Larry Kudlow on Friday said the U.S. and China are “still close” to reaching a phase-one trade agreement.The benchmark U.S. 10-year rate may rise to 1.92% in the next week, the highest since mid-November, Farren said.The yield retreated a bit after peaking at 1.86% Friday.Market reaction to the report “is somewhat muted, likely due to the myriad of major risks in the next 10 days,” according to BMO strategist Jon Hill.That period includes Fed and European Central Bank decisions, the U.K. election and the Dec. 15 deadline for the U.S. to impose more tariffs on China.\--With assistance from Emily Barrett.To contact the reporters on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net;Alexandra Harris in New York at aharris48@bloomberg.netTo contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Mark Tannenbaum, Greg ChangFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
- Thomson Reuters StreetEvents
Edited Transcript of BMO.TO earnings conference call or presentation 3-Dec-19 1:00pm GMT
Q4 2019 Bank of Montreal Earnings Call
- The Motley Fool
REVEALED: My Favourite (and Least Favourite) Canadian Banks for 2020
CIBC (TSX:CM)(NYSE:CM) and another stock to pay attention to in the new year.
- Bloomberg
BMO Exploring Transition Financing for Carbon-Capture Project
(Bloomberg) -- Bank of Montreal is exploring transition funding for a carbon-capture project as it seeks to mobilize C$400 billion ($301 billion) for sustainable finance by 2025.Transition financing helps companies finance the move to less carbon-intensive operations. Last week, Credit Agricole CIB became the world’s first commercial bank to issue a transition bond.“We are talking to a number of people about that but I don’t have a project that I could announce,” Dan Barclay, chief executive officer and group head of BMO Capital Markets, said in an interview in Toronto. It’s not clear if BMO would help finance the project or underwrite the debt.Canada’s financial industry is pushing to allow its energy sector to tap sustainable financing to back projects that cut carbon emissions. Some banks already use issues with the environmental, social and governance label to do the same. Global discussions are underway to set standards for financing that meet environmental, sustainable and governance goals.Canada will likely see its first transition financing in 2020, Barclay said.“I am very hopeful to see something during fiscal year ‘20,” Barclay said on the sidelines of Bloomberg’s Canadian Sustainable Investment Forum in Toronto. “I don’t have one yet, to put on the table, but I’m hoping to, soon.”Credit Agricole sold a 100 million euro ($110 million) transition bond which will finance the switch from coal-fired power to natural gas in Chile, and convert maritime shipping to natural gas from bunker fuel, the lender said in a Nov. 27 statement. The 10-year bond, privately placed with AXA IM, will pay a coupon of 0.55%.“Green is a certain type of financing but what I think could be more appropriate for Canada is transition bonds,” Paul Bowes, country head at FTSE Russell Canada said at the forum. “This is not a gold rush, this is fundamental.”Earlier this year, BMO set new targets for sustainability and inclusivity that included doubling the Toronto-based lender’s sustainable finance. Of the C$400 billion, the bank aims to provide C$150 billion in capital to companies pursuing sustainable outcomes.The bank’s global asset management arm already advises or oversees about C$150 billion of sustainable assets and the bank has raised about C$20 billion in capital for sustainable finance, said Barclay.“This is one of the defining issues over the next decade,” said Barclay.To contact the reporters on this story: Esteban Duarte in Toronto at eduarterubia@bloomberg.net;Divya Balji in Toronto at dbalji1@bloomberg.netTo contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, ;David Scanlan at dscanlan@bloomberg.net, Jacqueline ThorpeFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
- The Motley Fool
TFSA Investors: Should You Be Worried After Bank of Montreal (TSX:BMO) Announced Job Cuts?
Is Bank of Montreal stock a good pick after it reported fiscal fourth-quarter 2019 results?
- Bloomberg
Bank of Canada Holds Steady, Citing ‘Intact’ Global Recovery
(Bloomberg) -- The Bank of Canada struck an upbeat tone Wednesday, citing evidence of a stabilizing global economy and a resilient domestic backdrop that gives little indication policy makers are in a rush to lower borrowing costs.The Ottawa-based central bank held its benchmark interest rate at 1.75% for a ninth consecutive meeting, retaining language from its previous statement that it judges the current level to be “appropriate.” The prolonged pause has left Canada with the highest policy rate among advanced economies.The decision showcases a Bank of Canada still comfortable with its wait-and-see stance, maintaining its outlier status in a period of global monetary easing. In the statement, officials said the October projection for a recovery in global growth “appears to be intact,” even as international trade disputes remain the biggest source of risk. It characterized domestic economic conditions, driven by consumers and housing, as resilient.“Future interest rate decisions will be guided by the Bank’s continuing assessment of the adverse impact of trade conflicts against the sources of resilience in the Canadian economy,” policy makers led by Governor Stephen Poloz said in the statement.“There is nascent evidence that the global economy is stabilizing,” officials said, adding they expect global growth to edge higher over the next couple of years.The Canadian dollar extended gains on the decision, up 0.6% to C$1.3219 per U.S. dollar at 10:20 a.m. Toronto time, as investors pared bets on future cuts. Yields on two-year Canadian government bonds also jumped, trading at 1.62%, from 1.56% on Tuesday.“It’s steady as she goes for Captain Poloz,” Benjamin Reitzes, an economist at Bank of Montreal, said in a note to investors. “Today’s statement can be characterized as glass half full.”All 27 economists surveyed by Bloomberg expected the Bank of Canada to hold on Wednesday, though many see the bank eventually cutting borrowing costs as early as the first quarter next year. Markets are still pricing in a two-thirds chance of a rate cut over the next 12 months.Analysts characterized the statement as less dovish than the previous statement in October, when the central bank highlighted global risks and Poloz acknowledged the central bank had considered the merits of an insurance cut. While there was no reference to that in Wednesday’s statement, Deputy Governor Tim Lane will provide more insight into the deliberations in a speech Thursday.“Today’s statement dialed back the dovish rhetoric of the prior statement, and as such suggests that the BoC is pretty firmly on hold for now,” Andrew Grantham, an economist at CIBC World Markets, said in a note.On the global outlook, policy makers said financial markets are being supported by easing measures by other central banks, and “waning recession concerns.” And while trade uncertainty persists, the Bank of Canada noted commodity prices and the currency have been stable.Investment MomentumDomestically, the central bank said gross domestic product came in as expected in the third quarter, driven higher by consumption and housing, as well as unexpected strength in investment. Policy makers, who had expected a decline in capital spending in the second half, said they will assess the extent to which the pickup “points to renewed momentum” in investment.The Bank of Canada reiterated that the recent record of core inflation around 2% is consistent with an economy operating near capacity. While inflation is expected to pick up in coming months, the acceleration should be temporary due to year over year movements in gasoline prices.One thing constraining the central bank is debt. Credit growth and real estate activity are re-accelerating in the second half of this year, propelled in part by lower interest rates imported from abroad, and any additional stimulus by the Bank of Canada could fuel risks.“The bank continues to monitor the evolution of financial vulnerabilities related to the household sector,” they said in the statement.(Updates with analyst comments in sixth and ninth paragraphs)To contact the reporters on this story: Erik Hertzberg in Ottawa at eschmitzhert@bloomberg.net;Theophilos Argitis in Ottawa at targitis@bloomberg.netTo contact the editors responsible for this story: Theophilos Argitis at targitis@bloomberg.net, Chris Fournier, Stephen WicaryFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
- Yahoo Finance Canada
'Steady as she goes for Captain Poloz': Variable mortgage holders paying up
The overnight rate stays at 1.75 per cent for the ninth straight meeting, where it’s been since last October.
- The Motley Fool
Get Rich Slowly by Investing in Canada’s Most Hated Companies
Hated companies -- like Rogers Communications (TSX:RCI.B)(NYSE:RCI) and Bank of Montreal (TSX:BMO)(NYSE:BMO) -- can actually make excellent investments. Here's why.
- The Motley Fool
Young Investors: Should Bank of Montreal (TSX:BMO) Stock Be in Your RRSP?
Dividend stocks have long-been popular picks for buy-and-hold RRSP investors.
- The Motley Fool
Canada Stock Market up on Solid Bank Revenue Growth
Stock market investors may want to buy bank stocks in Canada on the Toronto Stock Exchange after positive Bank of Montreal (TSX:BMO)(NYSE:BMO) revenue report.
- The Canadian Press
BMO trimming five per cent of workforce, with cuts spread across business
TORONTO — The Bank of Montreal's fourth-quarter profit fell to $1.19 billion as it was hit by a restructuring charge related primarily to severance that will affect about five per cent of its global workforce.The bank said Tuesday the quarter ended Oct. 31 included a $357-million restructuring charge as a result of a decision to accelerate delivery of digitization initiatives and simplification of the way it does business.Part of reason for the move was lower margins from its personal and commercial banking business in the United States as a result of lower interest rates, as well as slower U.S. economic growth expected next year, officials said.BMO didn't reveal details about where or when the job cuts will occur, but it had about 45,513 employees at the end of October. A five per cent cut suggests about 2,275 jobs would be affected.Based on the geographic breakdown of BMO's workforce, the restructuring could affect roughly 1,500 jobs in Canada and 775 in the United States.Chief financial officer Tom Flynn said the efficiency initiatives announced Tuesday will provide annual savings of $200 million in its 2020 financial year, which began Nov. 1, and about $375 million by the first quarter of its 2021 financial year."I would expect the savings that we've talked about to flow through each of our businesses in a fairly representative way . . . both by operating group and by geography," Flynn told analysts on a conference call.Chief executive Darryl White said the cuts are a "sizable move" for the bank but reflects its strategy of continuous improvement and management discipline."We're looking for people to invest in areas where we have opportunities for growth and slow down in areas where we don't," White said. He said BMO clients and the bank have "general balanced optimism" about their momentum going into 2020."In Canada, we expect macroeconomic conditions to remain constructive in 2020, improving modestly from 2019 with stable interest rates and unemployment running at a four decade low of 5.6 per cent. In the U.S., we expect economic activity to slow modestly in 2020 in response to trade protectionism," White said.He added BMO expects to grow in the United States by winning market share and that the U.S. economy will be aided by three interest rate cuts announced over the past four months."Our financial objectives remain unchanged. Our goals over the medium-term are to achieve average earnings per share growth of seven per cent to 10 per cent."In reporting its results Tuesday, BMO said it will now pay a quarterly dividend of $1.06 per share, up three cents from its previous rate.The increased payment to shareholders came as BMO reported its net profit amounted to $1.78 per share for the quarter ended Oct. 31. The result was down from a profit of nearly $1.70 billion or $2.58 per share a year ago, when the fourth quarter included a $203-million after-tax benefit from the remeasurement of an employee benefit liability.This year's fourth quarter included $253 million in total provisions for credit losses, up from $175 million a year earlier, but lower than the $306 million announced for the quarter ended Aug. 31.On an adjusted basis, BMO says it earned nearly $1.61 billion in the quarter, up from $1.53 billion in the same quarter last year. The adjusted profit amounted to $2.43 per share, up from $2.32 per share a year ago.Analysts on average had expected a profit of $2.41 per share, according to financial markets data firm Refinitiv.BMO was the second of Canada's big banks to release fourth-quarter results, following Bank of Nova Scotia. Royal Bank of Canada and National Bank report their results Wednesday and TD Financial Group and CIBC report on Thursday. Scotiabank which said Nov. 26 that its net profit increased to $2.31 billion or $1.73 per diluted share from $2.27 billion or $1.71 billion in the fourth quarter of 2018. This report by The Canadian Press was first published Dec. 3, 2019.Companies in this story: (TSX:BMO, TSX:BNS, TSX:RY, TSX:NA, TSX:CM, TSX:TD) David Paddon, The Canadian PressNote to readers: This is a corrected story. A previous version said a potential 675 jobs were affected in the U.S.
- Baystreet
Stocks in play: Bank of Montreal
For the fourth quarter ended October 31, 2019, recorded net income of $1,194 million or $1.78 per share ...
- Bloomberg
Bank of Montreal Makes Industry’s Deepest Job Cuts in Years
(Bloomberg) -- Bank of Montreal’s drive to improve efficiency has come with a cost: C$357 million, along with the most dramatic job cuts by a Canadian bank in more than 15 years.The lender took the charge, which was C$484 million ($364 million) before taxes, mostly for severance payments. The cuts will affect about 5% of Bank of Montreal’s workforce, executives said on a fiscal fourth-quarter conference call Tuesday. That would equate to about 2,300 positions, based on the company’s year-end headcount.“This is a sizable move,” Chief Executive Officer Darryl White said on the call, while announcing earnings that beat analysts’ expectations. “We’re on a new path as far as a continuous improvement of the operating efficiency of the bank and this charge is designed to accelerate that path as we go forward.”The latest restructuring charge -- which follows one taken in the second quarter of 2018, also tied to severances -- included a small amount of real-estate related costs and is part of White’s efforts to improve productivity at what has been Canada’s least-efficient bank. The company’s adjusted efficiency ratio, a measure of what it costs to produce a dollar of revenue, was 60% in the fourth quarter, down from 62.2% a year earlier, as the lender moves toward White’s target of 58% or better by the end of fiscal 2021.“It is difficult for us to credit good expense control in the face of yet another restructuring charge from this bank, this time approaching C$500 million,” CIBC Capital Markets analyst Robert Sedran said in a note to clients. “However, the underlying segment performance was solid with improving volume growth, positive operating leverage and stable credit quality. A decent result.”Bank of Montreal shares fell 1.8% to C$98.88 at 9:38 a.m. in Toronto. They have gained 11% this year, compared with a 13% increase for Canada’s eight-company S&P/TSX Commercial Banks Index.The job cuts are across all areas of the bank and are deeper than previous rounds of reductions, including the elimination of 1,850 jobs, or 4% of the workforce, in May 2016, and the 1,000 positions cut in 2007. The latest move comes about six months after the Toronto-based company pared about 100 jobs across its capital-markets division.The reductions surpass Bank of Nova Scotia’s 1,500 job cuts, announced in 2014, and the 1,660 positions eliminated by Royal Bank of Canada in 2004. Those were among the Canadian banking industry’s biggest cuts in the past two decades.Bank of Montreal’s restructuring costs contributed to a 30% decline in net income in the quarter, with the company posting earnings of C$1.19 billion, or C$1.78 a share. Adjusted per-share earnings were C$2.43, beating the C$2.41 average estimate of 14 analysts in a Bloomberg survey. The bank raised its quarterly dividend 2.9% to C$1.06 a share.Wealth ManagementWealth management led profit growth in the quarter, with a 22% increase in earnings from the year earlier, while Canadian and U.S. banking also gained. Earnings from the company’s BMO Capital Markets unit fell 9.7% amid a tougher year for dealmaking.Also in the earnings announcement:Wealth management had its best quarter for profit growth since last year, with earnings of C$267 million, helping lift annual net income to C$1.06 billion. The bank aims to get C$2 billion in annual profit from wealth management by 2023.Earnings from Canadian personal-and-commercial banking, Bank of Montreal’s biggest business, rose 6.2% to C$716 million.In the U.S. banking division, which includes Chicago-based BMO Harris Bank, earnings climbed 5.6% to C$393 million in the quarter, even after the impact of Federal Reserve interest rate cuts. Net interest margins in the U.S. division narrowed to 3.35%, the lowest since at least 2010.Earnings from BMO Capital Markets fell 9.7% to C$269 million on a decline in revenue from investment banking fees and trading.(Updates with size of cuts starting in first paragraph, shares in sixth.)To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.netTo contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, ;David Scanlan at dscanlan@bloomberg.net, Daniel Taub, Steve DicksonFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
- Reuters
Bank of Montreal profit drops on costs to cut 5% of workforce
The cuts are part of Chief Executive Darryl White's strategy to lower the bank's efficiency ratio, which measures non-interest expenses as a percentage of revenues. BMO's adjusted efficiency ratio fell to 60% in the fourth quarter, from 62.2% a year earlier. "It's generally accepted that BMO is behind the others in this area," said John Kinsey, portfolio manager at Caldwell Securities, adding that banks' investments in technology portend more job cuts across the industry.
- CNW Group
BMO Financial Group Increases Common Share Dividend by 3 cents from the prior quarter, up 6 per cent from the prior year
TORONTO , Dec. 3, 2019 /CNW/ - Bank of Montreal (TSX:BMO) (NYSE:BMO) today announced that its Board of Directors declared a quarterly dividend of $1.06 per share on paid-up common shares of Bank of Montreal ...
- CNW Group
BMO Financial Group Reports Fourth Quarter and Fiscal 2019 Results
BMO Financial Group Reports Fourth Quarter and Fiscal 2019 Results
- Simply Wall St.
Is It Too Late To Consider Buying Bank of Montreal (TSE:BMO)?
Let's talk about the popular Bank of Montreal (TSE:BMO). The company's shares saw a double-digit share price rise of...
- The Motley Fool
1 RRSP Formula to Pay Fewer Taxes if You Make Over $100,000/Year
From contributing more money to your RRSP to investing in stocks like Bank of Montreal, here’s how you can maximize your RRSP’s potential for life in retirement.
- Bloomberg
U.S. Traders Bet Most in Two Years That Europe Has Bottomed Out
(Bloomberg) -- The worst is over for the European economy, according to buyers of exchange-traded funds.Investors have poured $1.5 billion into U.S. ETFs focused on European assets in November, data compiled by Bloomberg show. That influx puts the funds on track to take in the most cash in almost two years.Improved economic data is tempting investors to take a look at the region. A gauge of European manufacturing rose to a three-month high in November, while another report showed Germany unexpectedly dodged a recession, expanding 0.1% in the third quarter. It’s hardly a stellar comeback, but for some it suggests Europe has stabilized and is starting to bounce back.“The downward momentum in manufacturing seems to have stalled out,” said Yung-Yu Ma, chief investment strategist at BMO Wealth Management, which had $74 billion of assets under administration as of July 31. “It’s not quite turning around in terms of seeing positive elements, but at least in terms of perhaps hitting an inflection point, we think that’s a likely scenario.”BMO Wealth Management is currently underweight Europe but “the direction is starting to lean toward neutral,” Ma said.Flow LeadersThe Vanguard FTSE Europe ETF, ticker VGK, and the iShares Core MSCI Europe ETF, ticker IEUR, led monthly inflows into the region.VGK, which has its largest allocation to U.K. stocks, has seen about $766 million in inflows this month, the most since January 2018, the data show. And investors have added $436 million to IEUR in November, the most in a year.Growth in Germany, Europe’s largest economy, could be spurring flows, according to Philip DeAngelo, managing director at Highland, New York-based Focused Wealth Management, which oversees $1.1 billion of assets.“They just skated by a recession,” he said. “Markets really go up on news like that.”To contact the reporter on this story: Claire Ballentine in New York at cballentine@bloomberg.netTo contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Rachel Evans, Yakob PeterseilFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
- CNW Group
BMO Introduces the BMO Money Multiplier Variable Term Deposit
TORONTO, Nov. 28, 2019 /CNW/ - Today BMO Financial Group announced the launch of the BMO Money Multiplier Variable Term Deposit. The BMO Money Multiplier blends the characteristics of yield-generating and growth-oriented investments with the peace of mind of investments that secure the principle. "The BMO Money Multiplier is a unique solution for investors with medium to long-term portfolio outlook, who want a secure and guaranteed investment," said Mathieu Lepine, Head, Term Investments, BMO Bank of Montreal.
- Bloomberg
Yield-Curve Control Is a Bond Trader’s Nightmare
(Bloomberg Opinion) -- “Brainard — wow.”That was how Russ Certo, managing director of rates at Brean Capital, summarized remarks this week from Federal Reserve Governor Lael Brainard. Ian Lyngen at BMO Capital Markets called her comments “remarkable.” I had the same feeling.Technically, Brainard’s speech on Tuesday in New York was titled “Federal Reserve Review of Monetary Policy Strategy, Tools, and Communications: Some Preliminary Views.” But listening to her describe what were supposedly her personal views on how to best conduct monetary policy at the effective lower bound of interest rates, it certainly didn’t sound preliminary, even if she emphasized no conclusions have been reached just yet.The upshot is this: If the U.S. enters a deep enough economic downturn to merit cutting interest rates to zero, and the Fed determines even more easing is needed, expect the central bank to start capping yields on short-to-intermediate Treasury securities by intervening with asset purchases to set rate levels it deems appropriate. In other words, yield-curve control.Those three words should send a shiver up bond traders’ spines, given what a similar policy has done to the market for Japanese government debt. Every once in a while, there will be a story about bonds in the third-largest economy not trading for minutes, hours, or even more than a day because of the Bank of Japan’s curve-control policy. Like this. Or this. Or this.Here’s one of the most relevant portions of Brainard’s remarks:“I have been interested in exploring approaches that expand the space for targeting interest rates in a more continuous fashion as an extension of our conventional policy space and in a way that reinforces forward guidance on the policy rate. In particular, there may be advantages to an approach that caps interest rates on Treasury securities at the short-to-medium range of the maturity spectrum — yield curve caps — in tandem with forward guidance that conditions liftoff from the [effective lower bound] on employment and inflation outcomes.To be specific, once the policy rate declines to the ELB, this approach would smoothly move to capping interest rates on the short-to-medium segment of the yield curve. The yield curve ceilings would transmit additional accommodation through the longer rates that are relevant for households and businesses in a manner that is more continuous than quantitative asset purchases.” It’s fairly straightforward logic. If Treasury yields reflect nothing more than expectations about the path of the short-term fed funds rate, and the Fed’s forward guidance signals it will keep its lending benchmark locked near zero for at least the next two or three years, then why shouldn’t yields on Treasuries with those maturities be capped at the same, near-zero rate? In 2011, for instance, two-year U.S. yields fell to as low as 0.143%, or roughly the midpoint of the fed funds range, and hovered around the upper bound of 0.25% for much of the next 18 months.Of course, the difference is that back then, free markets dictated that yield level. By contrast, Brainard is envisioning the Fed strong-arming the $16.5 trillion U.S. Treasury market with whatever asset purchases are necessary to reach the desired outcome. Under her model, once the central bank meets its targets for inflation and employment, the caps would expire and those securities would roll off the balance sheet organically.Brainard didn’t stop there, though. In a rare move for a Fed governor, she admitted that looking back, she and other central bankers were too hasty in raising interest rates:“As we saw in the United States at the end of 2015 and again toward the second half of 2016, there tends to be strong pressure to `normalize’ or lift off from the ELB preemptively based on historical relationships between inflation and employment. A better alternative would have been to delay liftoff until we had achieved our targets. Indeed, recent research suggests that forward guidance that commits to delay the liftoff from the ELB until full employment and 2 percent inflation have been achieved on a sustained basis—say over the course of a year—could improve performance on our dual-mandate goals.”Again, from a purely theoretical standpoint, you can see the logic. And it’s worthwhile to question whether something has changed in the historical — but not quite conclusive — relationship between the two pillars of the Fed’s dual mandate.And yet, it’s hard to shake the feeling that all of this could just be central bankers getting too cute and bogged down in theory. After all, this talk of potential yield-curve control comes at a time when the Fed is having problems taming even very short-term interest-rate markets, which have been its primary domain for decades. As I wrote last week, it has basically thrown the kitchen sink at the repo market and it’s still not enough. In fact, just this week, it increased the size of its repurchase-agreement operation on Dec. 2, to $25 billion from $15 billion, in anticipation of year-end funding pressures. The Fed’s credibility has undoubtedly taken a hit in recent months. Obviously, the central bank could put its foot down to control longer-term rates — taken to the extreme, it could just buy an entire auction of two-year Treasuries at its desired yield level even if no other buyers wanted the debt at that price. But this would crush parts of the world’s biggest and most liquid bond market, and it’s unclear what the ripple effects of such a move would be.Certainly there’d be less need for U.S. rates traders or strategists (imagine the research: yields will be little changed!). What would a period of strict yield-curve control mean for the bond markets when the Fed achieves its dual mandate? Would that create massive volatility in Treasuries and corporate debt when the caps are lifted? And what if inflation never reaches the central bank’s target? Are pension funds and other savers expected to survive near the effective lower bound indefinitely? Is the Fed fine with companies continuing to load up on cheap debt?Again, none of this is official policy — yet. So far, it’s just Brainard daydreaming about what a new-and-improved policy would look like with interest rates up against zero. But make no mistake: This is a bond trader’s nightmare. To contact the author of this story: Brian Chappatta at bchappatta1@bloomberg.netTo contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
