Support for lower yields expected today

October 8, 2014 04:56 AM
Chicago Fed President Charles Evans is scheduled to offer his thoughts on the outlook for the economy shortly.
 
We will remember that his remarks in Chicago roughly a week ago were well received, or at least were consistent with the timing of significant progress in the bullish advance in Treasuries. Evans had then warned that a firming of monetary policy that came too early carried weighty potential negative repercussions. He advised patience in the movement toward normalizing the Fed’s policy stance.
 
He may have an even more receptive audience at this juncture. There were very few market participants only a short time ago willing to recognize anything but a likely forward advance in the timing of a firming of monetary policy. Today there is room for pricing further Fed patience. Surveys have recently shown some movement away from extreme bearish market sentiment and investor positioning.
 
Currently Treasury prices are steady to slightly lower from yesterday’s close. The bullish Treasury advance yesterday is more likely a precursor to additional gains. Ten-year Treasury yields touched a 15-month low yesterday and should be expected to fall further over the coming weeks as shorts move to the sideline and those in need of duration become more aggressive in Treasury accumulation.
 
Evans' remarks today along with the release of the September FOMC minutes should be expected to support lower Treasury yields. Regards, Marty McGuire
About the Author

Martin McGuire, managing director at TJM Institutional Services