The 2/27 WSJ reported that after Fed Chair Janet Yellen’s congressional testimony on February 24 and 25, Fed “officials fanned out to drive home the message that they are likely to start raising short-term interest rates later this year.” They included Fed Vice Chairman Stanley Fischer and the leaders of the Atlanta, St. Louis, and San Francisco Fed banks.
I’m sure we will shortly hear from many of them about their reaction to the latest stronger-than-expected employment report. In his Barron’s column this week, Randy Forsyth probably expressed the widespread consensus view:
When the Fed’s policy-setting panel gathers on March 17 and 18, there’s a good chance the ‘patient’ will be gone. That would leave the path open for the FOMC to lift its target for the federal-funds rate at the June 16-17 confab from the near-zero level that has prevailed since the crisis days of December 2008.
That assessment was instantly discounted in the bond market on Friday, when the 10-Year Treasury yield rose to 2.24%, the year’s high and the highest since December 26. Interestingly, the Merrill Lynch corporate junk bond yield edged up to 6.16% on Friday, but remains well below the recent high of 7.28% on December 16, when there were widespread fears of a significant global slowdown. The yield spread between Merrill’s composite and the 10-year Treasury is highly correlated with the S&P 500’s VIX, which remained low at 15.2 on Friday despite the selloff in the stock market.
By the way, in the 2/23 Morning Briefing, I listed eight reasons why bond yields were rebounding since the start of February. The bearish eight reasons mostly continued to drive yields higher since then. However, I’m still not convinced that the secular bull market in bonds is over yet. I will have second thoughts if the 10-year Treasury rises above 2.50%.
Today's Morning Briefing: New and Old Normals. (1) Lots of good news sends stock prices lower. (2) Fed diverging from central bank norm. (3) The strong dollar weakens earnings. (4) Sideways may be path of least resistance. (5) Time should be on the side of the bulls. (6) While Fed is normalizing, other centrals banks continue to abnormalize. (7) US bonds reverse course. (8) Draghi’s mission-almost-accomplished press conference. (9) BOJ still well below inflation target despite massive yen depreciation. (10) Chinese Premier sounds the alarm by sounding alarmed. (11) Earned Income Proxy at new high. (12) Why aren’t employment gains boosting wages? (13) Labor force dropouts at record high.
