[Economist] Will we see a "Bernanke put"?

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Nov 2nd 2008From Economist.com

Will we see a "Bernanke put"?

우린 버냉키 풋을 보게 될까?
THE “Greenspan put” was a term devised to describe the habit of the former Federal Reserve chairman, who would cut interest rates whenever the stockmarket seemed in crisis. The idea was that equity investors had insurance in the form of a put option, with Alan Greenspan agreeing to limit their losses.

그린스펀은 주식시장에 위기가 오면 금리를 내렸다. 그래서 주식투자자들은 그린스펀이 손해를 막아주는 풋옵션 같은 사람이라고 생각했다.

Now David Rosenberg, a well-respected economist at Merrill Lynch, thinks the current Fed chairman, Ben Bernanke, may introduce a “Bernanke put”, this time for the bond market. The topic arises because of the Fed’s recent cut in interest rates to 1%, posing the question of what the central bank can do if rates drop down to zero.

메릴린치의 로젠버그는 이제 버냉키를 버냉키풋이라고 생각한다. 하지만 이번에는 채권시장이다. 연준이 금리를 1%까지 내리면서 제로금리가 되면 이제 무얼할지가 논란거리로 떠 올랐다.

After all, interest rates cannot be cut below zero. But as Mr Bernanke pointed out in a November 2002 speech, the central bank would have other options, notably targeting short-term bond yields. “The Fed could enforce these interest-rate ceilings by committing to make unlimited purchasers of securities up to two years from maturity at prices consistent with targeted yields”, Mr Bernanke said. If necessary, the Fed could target bonds at even longer maturities.

금리는 0밑으로 떨어질 수 없다. 하지만 버냉키는 2002년 11월에 중앙은행이 또다른 방안을 쓸 수 있다고 말했다. 단기채 수익률을 조정하는 것이다. "연준은 이자상한선을 정해서 정해진 수익률에 따라 2년간 빌려줄 수 있다." 필요하다면, 장기채에도 이를 적용할 수 있다.

The idea behind such a strategy would be to keep longer-term borrowing rates low, thus encouraging companies (whose loan costs are priced in relation to Treasury-bond yields) to invest in new production. That would help stimulate the economy.

버냉키의 전략뒤에 담긴 생각은 장기대출이자율을 낮춰서 기업들이 투자하도록 촉진하는 것이다. 그렇게 되면 경기는 점차 살아날 수 있다.

For bond investors, this would be a one-way bet. They would know that yields could not rise above the targeted level, so the scope for capital losses on their bond portfolios would be limited (yields move in an inverse relationship to prices).

채권투자자에게는 이것이 one-way bet일 수 있다. 그들은 채권수익률이 상한선 이상으로 오를 수 없다는 것을 알고 있다. 따라서 그들이 투자한 채권들의 손실은 제한될 것이다. (수익률은 가격과 반대로 움직인다.)*채권은 만기상환액이 정해져있기 때문에 가격이 떨어지면 수익률이 오른다.

The tricky question is whether such an approach would conflict with another well-worn Fed strategy for reviving the economy—creating an upward-sloping yield curve. To explain, the yield curve comprises the range of interest rates at different maturities, from overnight to 30-year bonds. Traditionally, long-term rates have been higher than short-term ones because investors have to be paid more to make them willing to lock away their money. Occasionally, however, the yield becomes inverted (short-term rates are above long). That is normally seen as a sign that recession is on the way.

The basic business of banks is to borrow short and lend long. Thus an upward-sloping yield curve is good news for them. After the savings-and-loan debacle of the late 1980s and early 1990s, the Fed deliberately kept short rates low in order to generate an upward-sloping curve and boost the profits of the banking sector. The banks could do with a similar boost today, and sure enough short rates are well below 10-year yields (see chart).

If the crisis were sufficiently stark, the Fed would, of course, try to keep both short and long-term rates low; if the former were zero, the latter could be 2% or so. The obvious example is Japan, where 10-year yields are still just 1.5%.

It all makes for a tricky gamble for bond investors. Some are clearly worried that the cost of bailing out the banking sector will ultimately prove inflationary, especially as the spending-happy Democrats are set to increase their hold on Congress. That would suggest much higher bond yields in the medium term. But investors who place that bet could lose heavily if the Bernanke put swings into action.