As I’m not sure whether the equity market rally yesterday was on the belief that the Fed will embark on more policy steps or will just maintain still the current state of ease for a long, long time, the US Treasury market for a 2nd day is yawning. The 10 yr yield is at 2.23% vs 2.23% on Friday and the 30 yr yield is at 3.33% vs 3.31% on Friday. The 2 yr yield, more sensitive to Fed moves on the short end, is at .34% vs .35% on Friday. On Jan 25th the FOMC shifted its time frame on the fed funds rate to late 2014 from 2013 so lower for longer is not new. The question that Bernanke’s speech generated yesterday was thus will there be more printing or will the Fed just continue with Operation Twist past the June 30th expiration. The only thing that stops this FOMC’s voracious taste for cheap money is inflation and we’ll see whether $4+ gasoline over the next few months is enough to have an influence. The equity market believes not while the lack of a rally in US Treasuries yesterday thinks maybe.
