Bond Buyers See No 1994 As Bernanke Clarity Tops Greenspan

BOJ Governor Haruhiko Kuroda last month pledged to double monthly bond purchases to about 7 trillion yen ($71.8 billion), while the ECB last week decreased to a record low its main refinancing rate, to 0.5 percent from 0.75 percent.

Road Map

At a March 20 press conference, Bernanke provided the clearest road map on what needs to happen before the Fed trims its monthly bond purchases, while avoiding any hint that a cut is imminent. The central bank will adjust in a “sensitive way” based on several measures, including payrolls, wages and jobless claims, he said.

That’s not how the central bank communicated in 1994.

“As Fed chairman, every time I expressed a view, I added or subtracted 10 basis points from the credit market,” Greenspan said in an August 2012 Bloomberg Businessweek article.

“So you construct what we used to call Fed-speak. Nobody was quite sure I wasn’t saying something profound when I wasn’t. It’s a self-protection mechanism,” he said, “when you’re in an environment where people are shooting questions at you, and you’ve got to be very careful about the nuances of what you’re going to say and what you don’t say.”

Until 1994, the Fed didn’t publicly disclose when it raised or lowered the overnight bank lending rate.

Light Bulb

“This Fed, as compared with 1994, is so different in terms of transparency and communication,” Michael Materasso, a senior money manager and co-chairman of the fixed-income policy committee at Franklin Templeton Investments in New York, which oversees about $394 billion, said during a telephone interview on May 1.

“They go to great lengths to make sure you understand what they’re saying. In 1994 what you had to do was refer back to a speech Greenspan gave in October where if you held it up to the light and turned it 45 degrees, well of course it said: ‘We’re going to raise rates in three months.’ That’s not the goal with this Fed.”

When the central bank begins raising rates, short-term bonds and floating-rate notes, whose yields reset periodically, will be attractive, Materasso said.