The US 10Y treasury seen a revival after soon-to-be Fed chairwomen Janet Yellen said that the $85 billion monthly stimulus should not be cut due to the slack in the US economy.
Debt yields fell, and the 10Y note seen a two-month high and dropped 5 bps. The US 10Y is currently yielding 2.72 percent.
In a testimony prepared prior to her hearing before the Senate Banking Committee, Janet Yellen said “a strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases.” She also said the the Federal Reserve’s support during these times of slow growth will ultimately allow normal monetary policies in the future.
According to JP Morgan, treasury net-shorts increased six percent from the previous four percent net-shorts from the previous week. The net-long positions remained level at 19 percent.
The yield curve between the 3Y and 10Y notes narrowed three bps to 2.12 percent. This fell from 2.18 percent, which was the widest spread since August 2011.
It is still yet to be determined if the Federal Reserve will taper next month. Although to outlook is slim, Janet Yellen does not take the reigns of the Fed until current chairman Ben Bernanke leaves office on January 31. It will be interesting to see what the FOMC has to offer next month. Word of a December taper was spur by a better than expected GDP and non-farm payroll report in November, but this came off rather weak data in October.
Nevertheless, money printing seems to be the plan of action going forth; but one must wonder at what point that stimulus serves no net-positive effects (which has been brought up in the past).