To: Terry Whitman who wrote (3899 ) 5/25/2001 3:44:08 PM From: John Pitera Read Replies (1) | Respond to Fed telegraphing an end to the easing cycle?? some skuttlebutt from bondLand....10:29 ET Hearing increased talk that the market is beginning to sense a slowing or end of the easing cycle. Mixed comments out of both Meyer and Greenspan have given some the notion that we may see another 25 bp, but that could be the end of it. Why this change in mindset? because the Fed, while claiming that inflation is not a problem, does not want to create it. Traders are beginning to get the feeling that yields are beginning to have more of a bias towards backing up, and 5s and 10s are not the place to be in that situation. 10:50 ET simply provides more fuel for asset allocation out of stocks and into bonds. In other words, the Fed is not to going to take any chance with recovery, even though it is well aware of the likelihood of an overshoot. We have highlighted the Fed's obsession with restoring corporate profitability for some time now, but as we have mentioned time and time again, the very physical nature of the overhangs not only go beyond the nearby psychological impact of monetary easing, but actually portend to heightened pressures going forward . While we have already argued that this dynamic has begun to play out in the currency market, further support comes from recent concerns that the reflation rally has already compromised equity valuations.
