The Fed’s puppet show was pretty much what everyone expected. Rates aren’t going to move anytime soon. The standard verbiage was used and accepted by the markets. As a result we saw movement in pricing. The spread is still wide, but it’s moving in the right direction. Over the long haul, I’m still seeing the cup as half full. Rising treasury prices will serve the recovery no benefit at all. How long of a horizon do I see….? I can’t see that far because of the gathering storm clouds over Europe. Geo-political risk is a real concern in the debt markets for obvious reasons. All eyes are on Europe right now. Putin is still playing Army, China and Russia are becoming closer friends, and Greece is back in the news. Recent news is showing rioting and looting in Greece due to austerity and bail out being extended. “Looting and burning is a great way to support your country.” – said no one ever.
Economic releases have been kind of ‘meh’….not satisfying. This bolsters the Fed’s concern on inflation being low. I mean Disinflation. They don’t want to use “Deflation” because the markets will panic. The point being…. Inflation is sluggish and that’s a danger to our recovery. Yellen stated in testimony that inflation will fall before it rises. I was kind of surprised to see the lack of reaction to that comment, but our dear friends have it under control….? I could go so many places with that….I won’t.
Today, the Q4 GDP was revised down from 2.6% to 2.2%. Prior months are usually revised downward as standard practice. Bottom line, growth was sluggish in Q4 due to the strong number posted in Q3. None of that matters YET, the next 2 quarters will be very telling. Why do we care? Bond markets are safe haven markets… Don’t be too concerned about the large drop in the Chicago PMI index today. The weather likely played a role in the drop. Next month’s will be more telling of the direction.
There’s been a lot of chatter about negative bond yields in Europe. I’m not going to comment on the topic. No sense in ruining the weekend. Here’s an article for you to read….if interested. 10 Things to Know About Negative Bond Yields
February 10YT movement