VIEW: Goldman Sachs note that "During the.......>

FED: VIEW: Goldman Sachs note that "During the '40s, the Fed directly controlled

the level & shape of the US yield curve through stated yield targets & OMOs. As

long as these efforts continued the (nominal) risk in longer-term gov't bonds

was effectively zero. Has the Fed now adopted a wartime-like approach to

managing Treasury yields? Although the central bank has been very active in the

market, we do not think these actions should be interpreted as de facto yield

curve control (YCC). First, the FOMC has said that its bond purchases were

intended to "support the smooth functioning of markets," and it has scaled down

its buying as market functioning has improved. Second, like past QE ops, the

Fed's purchases are quantity-based rather than price-based (i.e. they target a $

amount of purchases not specific yield levels). Third, central bank independence

is more carefully guarded today compared to the '40s, and we would expect the

Fed to push back on efforts to guarantee certain borrowing costs for the Tsy.

Any further steps towards YCC in the US/other developed markets will probably

resemble the approach in Australia, where the RBA pegs 3-year gov't bonds at

0.25%-a policy more akin to fwd guidance than the Fed's policy during WWII."