Fed Keeps Low-Rate Policy Intact; Treasury Yields Spike Anyway; Hissy Fit Over Fluff

Curve Watchers Anonymous has a close eye on treasury yields in the wake of essentially no news from Bernanke as to when the Fed might actually begin hiking rates.

A mere hint the Fed might slow its QE program was enough to send treasury yields and the US dollar higher and stocks lower.

Yield Curve 2013-06-19



click on chart for sharper image

Curve Watchers Anonymous notes the yield on the 10-year note is up 13 basis points from yesterday, and the 5-year note is up 17 basis points from yesterday.

Here are some charts  Yields are off by a factor of 10. For example 5-year treasury yield is 1.27% not 12.27%. Note the selloff (rise in yield) the mid-day moment Bernanke opened his mouth.

$FVX - 5-Year Treasury Note



$TNX - 10-Year Treasury Note



$TYX - 30-Year Treasury Bond



These are significant selloff in this environment.

So what did the Fed say?

Nothing. At least nothing the market should not have expected.

Bloomberg reports Bernanke Says Fed on Course to End Asset Buying in Mid-2014.

Federal Reserve Chairman Ben S. Bernanke said the central bank may start reducing bond purchases later this year and end them in mid-2014 if the economy continues to improve as the central bank forecasts.

“If the incoming data are broadly consistent with this forecast, the committee currently anticipates that it would be appropriate to moderate the pace of purchases later this year,” Bernanke said today in a press conference in Washington. “If the subsequent data remain broadly aligned with our current expectations for the economy, we will continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year.”

Bernanke stressed that the Fed has “no deterministic or fixed plan” to end asset purchases.

“If you draw the conclusion that I just said that our policies -- that our purchases will end in the middle of next year, you’ve drawn the wrong conclusion, because our purchases are tied to what happens in the economy,” he said. “If the economy does not improve along the lines that we expect, we will provide additional support.”

The Fed repeated that it will keep buying assets “until the outlook for the labor market has improved substantially.”

Hissy Fit Over Fluff

Over that bit of nonsensical fluff (completely expected as well as frequently repeated fluff at that), the bond and stock markets threw a hissy fit.

This is further evidence the current markets are all about liquidity and speculation and nothing about fundamentals (in case you did not realize that already).

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com