The US Federal Reserve (Fed) was discovered to have quietly executed bond purchases worth hundreds of billions of dollars in early May during a relatively calm market period. This move was interpreted by some market participants as a "secret QE" that increased the money supply.
The Fed's Covert Operations and Market Reaction
According to a report by MarketWatch, the Fed bought $43.6 billion in US government bonds during the week of May 8, contrary to market expectations. This operation contrasts with the Fed's ongoing balance sheet reduction (quantitative tightening, QT) policy since June 2022, with the Fed's current balance sheet at approximately $6.7 trillion.
As for why the Fed is secretly buying US bonds again, analysts discovered that the US Treasury attempted to auction $150 billion in bonds on May 9, but only sold $78 billion, leaving a gap of $72 billion. To prevent increased volatility in the bond market, the Fed intervened to fill the gap.
US Loses All 3A Credit Ratings
More worryingly, Moody's international credit rating agency announced this Friday that it was downgrading the US credit rating from the highest level "AAA" to "AA1", officially causing the US to lose the 3A rating from all three major rating agencies (Fitch and S&P had previously downgraded, with Moody's being the latest).
Analysts warn that the current market is extremely fragile, and without major positive economic news to boost the safe-haven demand for US bonds, the US Treasury bond yields might further rise due to the rating downgrade. (The chart shows the 10-year Treasury bond yield reaching a three-month high, approaching 4.49%)
The decreased purchasing power for US bonds indirectly reflects growing concerns about the US's continuously expanding debt and deficit. Although it may not yet be a moment of panic, it is clearly a potential warning signal. It also increases the borrowing costs and pressure on the US government, which is certainly something Trump would least want to see.
US Stocks and Bitcoin Benefiting?
Against the backdrop of this "secret QE" by the Fed, global risk markets have just experienced a rebound in May, with cryptocurrencies like Bitcoin showing the strongest gains. With the reduced attractiveness of the US dollar, some analysts believe that the Fed's low-key and unexpected operation might further accelerate the rise of crypto assets.
However, it's important to note that the exact motivation behind this short-term boost and its long-term market impact remain unknown. In the complex and changing global economic landscape, there are still many variables in the market outlook.
