Hawk, also the recent back up in rates has done some of the FED's job. the Fed's McDonough, said the USD is somewhat overvalued today.... very interesting.
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Traders cited remarks by Federal Reserve Bank of Dallas President Robert McTeer and early afternoon comments by Federal Reserve Governor Mark Olson as key catalysts for gains in Treasurys. That was especially the case in shorter maturities, which are the most responsive to changes in expectations about the outlook for Fed policy.
Speaking in Prague, Mr. McTeer answered a question on interest-rate expectations by saying, "A combination of rapid productivity growth and a slack economy is not a recipe for inflation. So, we may have some time."
Meanwhile, in prepared remarks given at Florida A&M University in Tallahassee, Fla., Mr. Olson said, "Uncertainty about the strength of the economy is considerable." Another official who also spoke, Federal Reserve Bank of New York President William McDonough, said that although the economy appears poised to do better, "not all indicators are flashing green."
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08:18 ET 10-year: +7/32..5.374%....GNMAs: unch....$-¥: 133.16
McTeer's comments earlier with regard to rate hikes, and his opinion that they do not have to come soon fit in nicely with the conversation that we had with a balanced fund manager. That is, the recent backup in rates effectively did some of the work for the Fed. Remember, the Fed's tool, overnight rates, does not effect the term structure of rates (ie the yield curve), the market does. And to this end, recent sentiment from that Fed has led the market to price in a hike down the road by selling Treasuries and raising rates. And, while long term rates have risen only modestly since the beginning of the year, short term rates have skyrocketed in comparison, serving to flatten the yield curve.
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08:30 ET 10-year: +12/32..5.355%....GNMAs: unch....$-¥: 133.22
While it has taken favorable comments from the Fed's McTeer this morning to put a bid under the Treasury market, there may be a bit more going on behind the scenes. Of interest, some of our favorite coincident reflation indicators have begun to lose momentum. As we mentioned yesterday, the rally in the JoC seems to have been thwarted by the 50% retracement level of last year's decline. In addition, the Korean won recently fell to two-month lows despite hints of optimism surrounding the once-dismal prospects for a rebound in capital spending. The Australian dollar has also lost some ground over the last few days, while copper is bumping up against trendline support from early November. Not surprisingly, some of the recent sluggishness seems to be a function of our medium to longer-term quality of recovery concerns surrounding the lack of any broad-based improvement in final demand.
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08:56 ET 10-year: +14/32..5.345%....GNMAs: +10/32....$-¥: 133.00
NY Fed Pres McDonough out with comments at the NABE conference that lean somewhat to the bond bullish side of things, and are likely adding support to todays strength. In calling the economy "slack" he says that not all signs point to recovery, and that capital spending remains mired in weakness. Also mentioned was his thought that it will take some time to recover all the jobs lost in the economic downturn. And, adding more fuel the lack-of-inflation fire, he cites the strong dollar as keeping price pressures at bay.
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09:25 ET 10-year: +14/32..5.347%....GNMAs: +9/32....$-¥: 132.46....Euro-$: 0.8785
Somewhat interesting that McDonough commented on the value of the dollar. Usually, the Fed tries to stay away from the foreign exchange market. Of course, subtle hints that somewhat of a dollar correction would be welcome do fit nicely with thoughts that the decision to implement steel tariffs was partly a function of the strength of the dollar. Remember, expectations surrounding any adjustment of the US strong dollar policy could weigh on Treasuries as foreign investors will demand higher yields to offset the potential for currency risk. Short-term traders may want to take a look at some of the larger multinationals when the stock market opens in the next few minutes.
09:15 ET 10-year: +16/32..5.338%....GNMAs: +5/32....$-¥: 132.42....Euro-$: 0.8714
Despite some semblance of a lag, the dollar has finally weakened on the back of comments from the Fed's McDonough, who said that the greenback is a bit overvalued. Dollar/yen is now down almost a full figure on the session, while the euro has moved back to the unchanged level. |
