March 23, 2021 | Daily JAM, Morning Briefing |
This morning Federal Reserve Chair Jerome Powell gave reassuring inflation testimony before the House Financial Services Committee. Prices would rise this year as Americans are able to go out and spend post-pandemic, but while “We do expect that inflation will move up over the course of this year,” he said. “Our best view is that the effect on inflation will be neither particularly large nor persistent.” As you might expect on that view, the yield on the 10-year U.S. Treasury dropped 5 basis points to 1.64% as of 2 p.m. New York time on Tuesday, March 23. On most days recently a drop in Treasury yields like that would have produced a significant rally in stocks. But not today.
March 21, 2021 | Daily JAM |
The likelihood is that more nervousness in the financial markets about the Federal Reserve will lead to higher Treasury yields this week. The growing fear is that the Fed is asleep at the switch on inflation and that the central bank is going to be forced to play “inflation catch up” down the road. To a great degree the Fed has brought this problem on itself.
March 17, 2021 | Daily JAM, Morning Briefing |
At today’s (March 17) meeting of its Open Market Committee the Federal Reserve held its target interest rate at 0% to 0.25% and continued its commitment to buying $120 billion a month in Treasuries and mortgage-backed assets, as expected. But the central bank’s dot-plot survey showed more slippage on projections of when the Fed will raise interest rates. The majority of the Fed officials polled continued to see no interest rate hikes through 2023. But a larger number than in December–7 out of 18, up from 5–now see the first rate increase coming some time before the end of 2022.
March 16, 2021 | Daily JAM, Morning Briefing |
On Wednesday the Federal Reserve will update its projections for GDP growth, inflation, and the timing of any interest rate increase. In December, Fed officials, on the famous (or infamous) dot plot indicated that that central bank officials expected to hold benchmark interest rates in the current 0% to 0.25% range through the end of 2023. in the months since that projection from the Fed the market has been pricing in a different scenario, one that sees a tightening in interest rates from the Fed at the end of 2022. In other words roughly a year earlier than the Fed’s projected schedule last December.
March 14, 2021 | Daily JAM, Morning Briefing |
With everything going on, it’s easy to forget about the upcoming meeting of the Federal Reserve’s interest rate setting body, the Open Market Committee, on Wednesday. Which would be a mistake because, in my opinion, nothing is more important than interest rates (and bond yields) for the direction of stocks over the next four months or so. The Fed isn’t expected to announce any change in policy on Wednesday. Benchmark interest rates will stay at 0% to 0.25%. The central bank is almost certain to keep buying $120 billion a month in Treasuries and mortgage-backed securities But this meeting in scheduled to include an update on the Fed’s projections for future inflation and economic growth. Those words have the potential to shift the market ahead of any action.
March 4, 2021 | Daily JAM |
I’m not sure that it rises to the level of a “taper tantrum” but the financial markets wanted Fed chair Jerome Powell to signal that the central bank would increase its bond buying at the 10-year end of the yield curve in order to depress rising Treasury yields. And it got nothing of the sort from Powell speaking at a Wall Street Journal event today. Powell trotted out the same old assurances–the Fed wouldn’t raise rates even if inflation spiked in the short term. And the Fed would continue its program of buying $120 billion in bonds and mortgage-backed assets a month. But the same old assurances weren’t enough today. The yield on the 10-year Treasury jumped to 1.55% from 1.42% yesterday and took the stock market down with bond prices.
February 28, 2021 | Daily JAM, Morning Briefing |
Last week’s bond market plunge and yield increase priced in an earlier move on interest rates by the Federal Reserve. According to Bloomberg, markets now see a Federal Reserve interest rate hike by March 2023. At the beginning of February the bond market had priced in an initial interest rate increase in mid-2023.
February 28, 2021 | Daily JAM |
The odds are that the bond market will snap back this week as traders decide that the drop in the price of the 10-year Treasury (and the climb in yield) has been too far and too fast. (A drop in Treasury yields would be likely to send stocks higher, reversing the trend of the last week.)I don’t think that reverses the trend beyond a week’s bounce, however. The $1.9 trillion coronavirus stimulus/relief bill still scares the bond market with the possibility of an uptick in inflation (finally) and the possibility that the package migh work and actually put the economy on the path to a sustained recovery. (And why might that be a bad thing, you ask: Because a clearly sustained recovery would incline the Federal Reserve to end, or at least scale back, its monthly purchase of $120 billion in Treasuries and mortgage-backed securities.)On Friday the yield on the 10-year Treasury fell to 1.40% as bond prices rose. That was an 11 basis point drop on the day and it could well be a harbinger of a bounce for Treasuries this coming week.
February 25, 2021 | Daily JAM, Morning Briefing |
Yields on U.S. Treasuries hit 1.61% early today before pulling back slightly to 1.51% as of 3 p.m. New York time. It’s not just the rise in yields or even the magnitude of the increase that has so disconcerted the bond market today, February 25. It’s the speed of the move. As of 3 p.m., the bond market was looking at a 14 basis point increase in yields just today. That’s a huge move for the normally slow-moving bond market.
February 21, 2021 | Daily JAM |
Federal Reserve Chair Jerome Powell will testify in front of the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday–and do his best not to make any news.
February 18, 2021 | Daily JAM, Short Term |
10-year Treasury yield hits 1.30% even as stocks drop with rates hitting peak from before the March 2020 pandemic panic
February 15, 2021 | Daily JAM, Morning Briefing |
A JPMorgan Chase measure of cross-asset complacency that includes valuations, portfolio positioning, and price momentum is nearing its higher level since the dot-com bubble burst in 2000. Global investors are the least fearful they’ve been in two decades
