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Treasuries Trading in a Tight Range, Looking for a “New Direction”?

The 10 year T has been sitting in the 2.30 – 2.35% range for a couple weeks, the market seems to be “waiting for direction” from a couple places: (1) The data: this Friday’s monthly jobs report will be closely scrutinized for the usual (general trends, wage inflation, etc) and the particular (fallout from recent hurricanes, will this cause a spike in hiring with labor shortages ?); (2) The next Fed Chair speculation: Washington’s favorite subject is often the next big appointment, who is the “favorite”? Is there a potential surprise “dark horse”? With Fed Chair Yellen’s term as Chair ending in January 2018, the rumor mill is in overdrive. The favorite is Fed Governor Jerome Powell, a “dove”, the other major contender is the hawkish former Fed governor Kevin Warsh. Powell is seen as a continuation of Yellen, while Warsh is a wild card that could accelerate the pace of rate hikes or the Fed balance sheet reduction. As one or the other is perceived to be the favorite, bond yields may spike or drop accordingly. (3) Congress and the Administration: Tax reform and/or Tax Cuts: On the agenda, the question is will something pass and if so, what will it look like? Higher deficits? How stimulative will it be? Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners