Hard to imagine someone terribly happy to have secured 1%, 10-year yields I suppose.
Our minds just do not want to go there. However, the reality for today is that Europe is not humming along and there is a distinct possibility for ECB to take in an inventory of sovereign debt (QE). This along with geopolitical developments has pressured yields and today the Bund touched below 1%.
In the States, we were/are getting geared up for a lift-off from ZIRP toward mid-year 2015. The strangest part of these expectations may be that mid-2015 was discussed for lift-off way back in 2012. At the September 13, 2012 FOMC meeting the Fed statement offered; ‘In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.’ Before September ’12, The Fed had been saying ‘…at least through late 2014.’ So, it has been nearly 2 years that the Fed has been delivering a fairly consistent message.
However, timing as well as the road toward ‘normalization’ is now shrouded in the fog of uneven progress toward Fed employment and inflation goals and questions about steps and usage of monetary policy tools to remove accommodation. Until that is sorted out, heightened uncertainty around these variables will result in greater volatility in rates and asset markets and will as well negatively influence economic growth at the margins. As such, the default for Treasuries shall be toward lower yields; until such time as greater clarity toward Fed policy intent is recognized. Counterintuitively, the default switch would still be turned off even if a strong consensus view of Fed policy intent is toward a slightly more accommodative stance.
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