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Yellen Commentary Fails To Inspire Bond Markets

Thursday, November 17, 2016 11:49
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Federal Reserve Chairperson Janet Yellen completed her testimony before Congress today, and even the biggest bond bulls could never spin anything she said to be remotely dovish.

From the Wall Street Journal:

Fed Chairwoman Janet Yellen on Thursday said a rate increase could come “relatively soon,” and her remarks were followed by some of the best government data in decades on housing, jobless claims and inflation. The news bolstered expectations the Fed will lift its benchmark short-term rate at its next policy meeting on Dec. 13-14.

What does “relatively soon” mean? Most market participants assume it means this December, when the Fed will meet on 13th and 14th of the month to discuss its policy. Yellen noted that very little has changed since the Fed last met, and that the election — and subsequent global sell-off in bonds — hasn’t altered their approach:

The Fed chief said the results of the U.S. presidential election hadn’t changed officials’ view following their last policy meeting that the case for a rate increase had strengthened.

“To my mind, the evidence we’ve seen since that time remains consistent with the judgment the [Fed’s policy] committee reached in November,” she said, noting that incoming data supports their expectations for strengthening economic growth, an improving labor market and rising inflation.

10-Year Treasury Bond yields jumped 5 basis points to around 2.25% following Yellen’s testimony, and bond ETFs were selling off in kind (as rates rise, the value of bonds falls).

The iShares Barclays 20+ Yr Treas.Bond ETF (NASDAQ:TLT) fell $1.48 (-1.20%) to $121.53 per share in Thursday afternoon trading. Year-to-date, the largest fund tied to long-term Treasuries has gained 0.79% (note the fund was up 19% this year at its highs back in July).


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