The 10 year Treasury sits at 1.74% after hitting a 4 month high of 1.84% on Monday. Fed members Yellen and Fischer both gave interesting statements in recent days: Yellen mused about the effect (or lack thereof) of macro monetary policy on segments of the workforce. She suggested that the Great Recession may have eroded the skills of much of the nation’s workforce and consequently their spending habits. This is a deeper more granular level of analysis than the Fed usually engages in, as it generally focuses on national inflation and unemployment statistics. Fischer made the case for raising rates, sounding the alarm on the “dangers” of low rates threatening financial stability. Markets still expect a rate increase in December. Overall, the Fed has lowered their growth expectations and eventual “normalized” short term rate, from about 4% to 3% (today its 0.50% and expected to normalize in 2018/2019). Speaking of inflation, yesterday’s core CPI number of 0.1% for September was below the expected 0.2%. This caused some buying of Treasuries. However, oil prices hit their highest level since July 2015 today. If oil prices firm up and start rising, it could be a factor in an uptick in inflation. Treasuries then sold off due to hedging of the massive Saudi Arabia bond sale ($17.5 billion, interestingly priced at 1.65% over the 10 year Treasury). stay tuned David R. Pascale, Jr.
