On too many occasions to count, we’ve show the following set of images from Citi’s Matt King which shows the extent to which central banks have commandeered markets the world over:
Note the correlation between CB liquidity, spread compression, and stock prices. Pretty perverse, no?
Oh well, it’s good for the old portfolio.
Well this morning, Deutsche Bank is out with a fresh look at central bank largesse and as you might have anticipated given the lunatic policies of the BoJ (which, you’re reminded, now owns close to 60% of the Japanese ETF market and is a top 10 holder in 90% of the Nikkei) and the ECB, which has bought so many German government bonds that they’ve had to move into SSAs and now corporates (not to mention raise the issue cap built into the program) lest they should simply run out of assets to monetize, this Keynesian experiment has hit full throttle. Have a look:
(Chart: Deutsche Bank)
And of course now, the BoE is coming back into the game. You’re also advised to remember that the BoE and the ECB would rather purchase assets trading as rich as possible because with QE program targets calibrated on a nominal basis, the more you overpay, the more room you have to hit your monthly targets without diminishing supply. And the more central banks’ collective M2M losses will be if yields ever rise (“we’re holding them to maturity”).
Chew on that this Thursday.