Meanwhile, speaking at the same conference, Philadelphia Fed’s Charles Plosser (who does not currently have a vote) poured gasoline on the fire saying that asset purchases should be tapered off starting in June.
We have been steadfast bulls on U.S. Treasuries, even at ultra-low yields. With a great deal of uncertainty surrounding the European fiscal crisis, doubts as to the strength and sustainability of the U.S. recovery, and the likelihood that extremely accommodative Fed policies (not to mention outright asset purchases) will stay in place for the foreseeable future, the safety and liquidity of U.S. Treasuries is hard to beat. Weakness should be viewed as a buying opportunity. Favor the long end of the curve (30 years) where real yields are still positive (Chart 2) over the 10-year notes, which have a negative return after inflation expectations (Chart 3).