With Tepid Economic News, Will Feds Taper Sooner or Later?
The 10-year treasury has continued to sell off following October payrolls.
“Traders abhorred the vacuum of the range trade and were looking for almost any signal to break outside 2.68%,” according to a statement by FTN Financial Group. “Numerical job gains were surprising only in their timing, not their size or composition. For those with cash yet to commit, the 10-year in the 2.70’s is just what they were looking for.”
It appears unclear what is driving trading in the treasury market aside from payrolls and bad technicals. Less certainty is if the Fed will postpone tapering until March. The March date was a creature of the bad September payroll report, and 10-year UST are now 15 bp above the level that preceded that particular release. Will the conviction the Fed taper in December? That’s a big stretch after 3Q GDP internals. A faster timetable for global economic recovery? Not according to the ECB’s view.
Vanguard Chief Says Losses Aren’t Locked in When Fed Tapers
A reduction of quantitative easing by the Federal Reserve needn’t be a harbinger for losses with growth slow and inflation subdued, according to Gregory Davis, named last week as head of fixed income at Vanguard Group Inc.
“You can have some tapering of QE, but at the end of the day, you still have an economy that’s relatively weak, that’s showing a few signs of life,” Davis, 43, said. “Inflation is still low, the labor market is relatively fragile, the expectations are the Fed’s going to remain accommodative for a long period of time.”