Aside from the decline since the beginning of the year, Treasury yields are very low. If the economy is expected to improve, QE is being phased out, and the Fed says it will start tightening next year, why is that the case? We look at the components of long-term Treasury yields to help us determine what the market is pricing in and which direction yields are most likely to go.
We present what consensus seems to be on BOJ, ECB, and Fed policy based on conversations with clients, media reports, and market prices. We then discuss where we differ from that consensus. A short table summarizes the extent of our differences.
Violence is escalating in Ukraine as Russian-backed militias have taken over local government buildings in the eastern part of the country. Russian President Vladimir Putin may be trying to destabilize Ukraine or he may be laying the groundwork for an invasion. In today’s report, we consider how the US might respond to an invasion. We also discuss a number of developments in the health care area last week (Burwell nomination, risk pool on the exchanges, Gilead and drug price controls).
Click here to download the slides (PDF) Main points: – First, a few words on the FOMC minutes: Don’t trust the news headlines. – What the three components of nominal yields are telling us. – The bond market seems to be pricing slow growth for years to come. – If growth proves itself, the bond market will have to adjust significantly.
Today we provide a summary indicator for Yellen’s dashboard of gauges of labor market conditions. Our indicator condenses the information contained in the dashboard into one statistic, which is easier to work with. We show how this indicator can be used to assess future Fed policy decisions, in particular the decision of when to start raising rates.
Media headlines and commentary made the minutes sound more dovish than Yellen’s press conference. In today’s report we look at what the minutes actually said and we explain why we think the general impression is not accurate. We also try to help clients make sense of the minutes by translating into plain English some of the terms the Fed uses frequently. Finally, we go through the market implications of our reading of the minutes.
Income inequality continues to be a hot political topic, especially among congressional Democrats. President Obama has called the problem of income inequality the great challenge of our time, but Democrats have struggled to propose policies that match the scope of the problem. Today we discuss developments on three policy proposals Democrats have offered to deal with income inequality: extended unemployment benefits, minimum wage, and equal pay. We also review the findings of a Morgan Stanley survey of insurance brokers on health care premiums.
The minutes of the March FOMC meeting will be released tomorrow at 2pm EDT. The focus of the meeting was on modifying forward guidance while changing existing market expectations as little as possible. In light of that, the minutes are likely to answer some of the many questions investors have, but not some other important ones. We give our take on the market impact as well.
The Senate Banking Committee is scheduled to consider legislation that would liquidate Fannie Mae and Freddie Mac and replace them with an explicit government guarantee but with the first loss being absorbed by the private sector. A number of studies have now been released that aim to quantify how much borrowing costs would rise under the new system and we take a look at them in today’s report. We also comment on Obama’s approval rating and private lenders have increasingly been filling the void in European bank lending to small- and medium-sized businesses.
Click here to download the slides (PDF) Main points: – US employment report was solid, but what does it mean for Fed policy? – Updated Yellen’s job market dashboard indicator slides. – What did Yellen mean in her speech this week? – How important was Draghi’s press conference yesterday?