Compared to the 5 PM close, yields in the US are higher
The yields on US bonds have rebounded higher in trading today.
Yesterday, saw the:
- 30 year yield fall to 2.51% from 2.60% on Tuesday. Today the yield is up to 2.538%
- 10 year yield fall to 1.92% from 2.05% on Tuesday. Today the yield is back up to 1.98%
- 5-year yield fall to 1.39% from 1.55% on Tuesday. Today the yield is up to 1.48%
- 2-year yield fall to 0.55% from 0.67% on Tuesday. Today the yield is back up to 0.62%.
The FOMC statement and projections - and Yellen comments - shocked the market. I feel, the biggest shock was in the fall in the end of 2015 rate projection to 0.625% from 1.125%. However, if you think about it, the sudden plunge brings the projected rate in line with the chatter from the FOMC members..
Let's face it....all FOMC member have expressed how rate increases will be gradual and subject to data. They also recognize that there are tail winds in the economy from the international sector. There are tailwinds from the rise in the dollar, and tail winds from slow wage growth.
At 1.125% - with tightenings not starting until June at the earliest - it suggested 4 tightenings before the end of the year, in a 5 meeting span. That is simply not what the market expects nor the Fed is even considering.
With the projection at 0.625%, the Fed is saying there could be two tightenings between June (at the earliest) and the end of the year. It might be one, it might be three. It won't be four. So two makes the most sense. It makes more sense now.
Today yields are up to reflect, the fact rates are still likely to rise. The 2 year yield at 0.62% is right on the projected Fed Funds target rate (***it may not be achievable to get the rate there, but it will be the "target rate").
