Monday | September 15, 2014
- The yield curve bear steepened last week as the market shrugged off a disappointing August jobs report and looked ahead to what could be a hawkish FOMC meeting Wednesday. On the week, yields on the 2, 10, and 30-yr Treasuries increased by 6, 19, and 17 bps, respectively.
- 10- and 30-year yields broke out of recent ranges also moving above bull trend lines, with each reaching its highest close since mid-July. Meanwhile, the yield on the 2-year Treasury recorded its highest close Wednesday in over three years. This move higher in rates can be attributed to speculation that the Fed might consider removing the "considerable period of time" language from their forward guidance on interest rates. Publications from major financial news sources and bank economists indicated that market participants were moving forward their expectations for the first Fed rate hike.
- Geopolitical news remained at the forefront, with new developments popping up in Ukraine, Scotland, and Iraq. Although these situations did not deter the upward movement in rates last week, any positive resolutions could lead to more room for yields to rise in the near-term.
- Top-tier economic data releases this week will include Industrial Production (0.3% exp.), Housing Starts (est. 1040k), and CPI (0.2% ex Food and Energy).
- The focus will be on the FOMC's September meeting and their decisions regarding the pace of quantitative easing and any change in forward guidance.
- Asset purchases are expected to be reduced from $25bn/month to $15 bn, setting the stage to conclude the bond-buying program before the end of the year. A confirmation of this number is unlikely to move markets.
- After moving away from guidance based on quantitative measures (i.e. unemployment rate being above 6.5%), the Fed has recently stated that their benchmark rate will remain low for "a considerable period of time" after the end of its asset purchasing program. This phrase will be the most closely watched as it is possible that its removal would be interpreted by markets as a signal that a rate increase is imminent.
- In addition to the regular FOMC statement, the Committee will release their quarterly economic forecasts. This includes estimates of economic fundamentals such as inflation and GDP growth as well as Fed Funds Target Rate forecasts for 2015-17 and the "longer-run".
The information represented herein was obtained from various sources, which we believe to be reliable. Neither the information presented nor opinions expressed constitutes an offer to buy or sell any security. And it is not intended to guide the investor on which securities to buy, or when to buy or sell.