Higher Bond Yields In 2018?

George Yacik - INO.com Contributor - Fed & Interest Rates


As a homeowner in a high-tax Blue state, I’m not sure I have a whole lot to be personally happy about in the Trump tax reform bill. My state’s government, which is already teetering financially, isn’t likely to reduce its own taxes to compensate for the cap on deducting state and local taxes. Nevertheless, I’m happy that the measure passed.

For one thing, it’s heartening to see the Republicans stand fast for a change and actually follow through on something their constituents have demanded and expected from them, rather than caving in the face of criticism from their liberal opponents in Congress and the press. I’m also getting a lot of enjoyment listening to the breathless hyperbole by Nancy “Armageddon” Pelosi, Chuck “Fake Tears” Schumer and the gang denouncing the bill, plus the stories by their allies in the press about the “victims” of tax reform, neglecting to mention the “victims” at AT&T, Wells Fargo and all who are being given immediate raises as a result of the measure.

Not a whole lot has been written or said about one of the more likely consequences of the package, and that’s that interest rates are going to move higher in 2018.

Already, in just a few days leading up to the passage of the bill, the yield on the 10-year Treasury note jumped 15 basis points to 2.50%, its highest level since last March and just 10 or so bps below its high for the year. It’s likely to rise further in 2018. Here’s why. Continue reading "Higher Bond Yields In 2018?"

Has Yellen Become A Dove Again?

George Yacik - INO.com Contributor - Fed & Interest Rates


Janet Yellen’s equivocal remarks at last week’s semi-annual Congressional testimony certainly might make you believe that a rate hike at the Federal Reserve’s July 25-26 meeting is hardly a sure thing. Indeed, the odds of that happening are a lot less than 50-50. A lot less.

In her testimony, Yellen remained confident in her previous declarations that inflation would gradually rise to the Fed’s 2% target. “It’s premature to reach the judgment that we’re not on the path to 2% inflation over the next couple of years,” she said. But then she quickly hedged her bets. “We’re watching this very closely and stand ready to adjust our policy if it appears that the inflation undershoot will be persistent,” she said.

Based on the past several months’ worth of inflation statistics, one would have a tough time arguing that lower-than-expected inflation hasn’t become “persistent.” Last month’s consumer price index was unchanged from May and up only 1.6% versus a year earlier, the fourth straight decline by that measurement. That followed May’s personal-consumption expenditures index, the Fed’s preferred inflation measure, which fell 0.1%. The core index, which excludes food and energy, rose 0.1%, but just 1.4% on a year-to-year basis, well below the Fed’s target rate and lower than at the beginning of the year. Continue reading "Has Yellen Become A Dove Again?"

Should We Believe The 'Transitory' Story?

George Yacik - INO.com Contributor - Fed & Interest Rates


The bond market may have stopped listening to the Federal Reserve, but that doesn't mean we shouldn't know what the voting members of its monetary policy committee are thinking. What's clear is that they're not as united as they were at their last meeting just two weeks ago, when they voted nearly unanimously to raise interest rates by 25 basis points, with only Minneapolis Fed President Neel Kashkari voting against.

Now, no sooner was the vote cast, but it appears that it at least one member, maybe two, have misgivings about voting for the increase. At the very least, they're not as much in a hurry to raise rates again soon, if not until the end of this year, if not even later.

Still, as you would expect – or hope for – in a body of intelligent people, there's a strong difference of opinion on what the Fed should do next as it concerns interest rates. Continue reading "Should We Believe The 'Transitory' Story?"

So The Fed Raised Rates: Why Is the Market Acting Surprised?

George Yacik - INO.com Contributor - Fed & Interest Rates


It never ceases to amaze me how some people still react to and hang on to the words of former authoritative figures long after they’ve ceased to be relevant.

The other day 76-year-old Martin Sheen – Charlie’s father, for those under 40 – led a group of liberal has-beens and C-list “celebrities” urging Republican members of the Electoral College not to authenticate Donald Trump’s election. Does Sheen really believe people still care about what he thinks, if they ever did? Guess so.

While I admit that Janet Yellen and the other members of the Federal Reserve have hardly reached Martin Sheen status as irrelevant, I have to wonder about the market’s reaction to Wednesday’s decision by the Fed to raise interest rates an entire quarter point. Why did anyone care? Continue reading "So The Fed Raised Rates: Why Is the Market Acting Surprised?"

Is The Spike In Bond Yields Trump's Fault?

George Yacik - INO.com Contributor - Fed & Interest Rates


Pretty much ever since Donald Trump threw his hat into the ring to run for president about 18 months ago, he’s been blamed for any number of things that have upset some people, no matter how preposterous.

He’s been blamed for recruiting Muslim fanatics to fight for ISIS. He’s been blamed for inciting violence at his own rallies, plus the riots that have followed his election. A middle school teacher in Berkeley, California - where else? - Blamed Trump after she had said she received an anonymous threat from neo-Nazis. I suppose if I spent enough time researching it I could find someone blaming Trump for killing Lincoln and Kennedy, the two World Wars and global warming - you just know he must have had something to do with that!

Now, since his stunning upset victory in the U.S. presidential election, bond yields have spiked to their highest levels since last January, and many people are putting the blame on him for that. Continue reading "Is The Spike In Bond Yields Trump's Fault?"