Treasury prices are pushed lower amid chatter that the Fed could hike discount rates again, traders say.
Short-dated Treasurys, whose yields are sensitive to changes in official rate outlook, lead the selling. While the Fed has taken pains to assure markets that a surprise hike last month in the discount rate won’t lead to tightening of broader consumer credits, market participants still jump on any speculations that would lead the central bank a step closer to tightening monetary policy.
The two-year note is 2/32 lower to yield 0.960%, the 10-year note is down 7/32 to yield 3.670%. The 30-year bond is 7/32 lower to yield 4.585%.
Dow industrials clinging to gains, up 10. S&P 500 off 3.4. Dollar also strengthened against both the euro and the yen. US Dollar Index – which tracks the greenback against a basket of six other currencies – gained 0.9%.
Fed declined to comment.
Keep in mind, though, that as markets are buzzing with rumors, this is purely speculation, at the moment. And if it does happen it does not actually mean much, as it won’t be a tightening of monetary policy. Instead, it would represent a further normalization of emergency policy, for a facility that is very little used right now.
- Fed’s latest move to boost discount rate prompts thoughts that central bank’s ready to tighten. “Let’s hope that this is wrong,” Paul Krugman says, noting Fed waited almost three years to tighten after 2001 recession. “Assuming that the recession technically ended in June 2009, comparable behavior now would say no rate rise – and no tightening through other measures, such as shrinking the Fed’s balance sheet – for at least another two years.”
- Consumer staples and discretionary are only two overbought sectors in S&P 500, while telecom remains the lone oversold sector, according to Bespoke Investment Group. “These levels are in stark contrast to where we were at the start of last week,” when seven out of ten sectors were trading in oversold territory, firm says.
- Insider selling hit a fresh 2010 high last week, while buying also rose but remains near historically low levels, according to Pragmatic Capitalist. “Insider buying has been unusually low throughout the rally
as economic fundamentals remain questionable. Recent signs of recovery have done little to encourage insiders to invest their personal dollars in their own companies.”
- Volcker Rule endorsements keep increasing. “The writing is on the wall for all to see – the major ‘systemic’ banks will ultimately lose their vast prop trading operations,” Josh Brown notes. “The new question becomes, where will all of those exciting and typically profitable trading operations wind up?”
- Regulators and the media focusing on the crisis seem to think regulating derivatives is the best way to prevent a future crisis. But derivatives are only part of the problem, Roger Ehrenberg says. “The issue isn’t derivatives; it’s all financial transactions whose objective is to deceive or to weaken financial transparency.”
- There’s much more than commercial real estate to worry about. “Perhaps the economic miracle fairy casts her wand and cures all these system risks,” Michael Shedlock says. “But I would not bet on it.”
- Hype surrounding Apple’s (AAPL) iPad and the notion it will somehow become traditional media’s savior is getting tiresome, Kara Swisher writes. “Like Goldilocks, that’s just a fairy tale until the iPad is actually out in the wild and subject to consumer use when it begins to be rolled out in late March,” she says.
- Apple’s removed more than 3% of the apps in its App Store since last week, when it began enforcing a stricter policy about risque offerings. The purge continues to anger developers, who take issue with AAPL’s view of what is overtly sexual content.
- Obama proposes nearly $1 trillion, 10-year health-care plan that would allow US to deny or roll back insurance-premium increases and delay a tax on high-end plans until 2018.
- Deflationary winds kicking up? Core CPI slips into negative territory for first time since 1982. “It’s hard to overlook the fat that negative monthly readings for this data series are extraordinary rare,” James Picerno says. “For the sake of economic stability, let’s hope it stays that way.”
- With Goldman Sachs’ (GS) image under attack, spokesman Lucas van Praag’s tough talk has only served to “alienate potential allies and enablers in the press and project a supercilious institutional arrogance which only serves to confirm the unflattering portrayals offered up by the firm’s detractors,” the Epicurean Dealmaker blog says.
- “High volatility in sentiment is a clear sign of utter confusion on the part of market participants and creates a landscape that is ripe for dramatic moves in either direction,” the Pragmatic Capitalist writes.
- Fed’s discount rate hike has more to do with technical reasons than a policy shift, former Dallas Fed president Bob McTeer says.
- Barclays scooped up a lot of talent throughout the financial crisis, according to LinkedIn data.
- Matt Taibbi’s latest account of the financial crisis misses one key point that no one wants to talk about: we could be in a depression without government intervention, Andrew Leonard writes. Still, reflecting on current bank profits, banks’ resistance to regulation and inability of government to do anything about it, “I’m beginning to come around to the view that maybe it would have been more effective to just blow everything up and start all over.”
- Deal activity has gotten off to a sluggish start in 2010, but investment bankers remain busy keeping up with secondary offerings, DealBook reports.
- Bottom line to this economy recovery is job growth. “The good news is Washington is working on it,” S&P’s Howard Silverblatt says. “The bad news is Washington is working on it.”
- Record bank profits may be tough to come by as the Fed starts raising rates.
- Tiger made the world stop from 11:00 to 11:15 this morning. How’d he do? Bill Simmons says the press conference was “a borderline train wreck.”
After an initial shock in the futures market, US stocks today have mostly shrugged off the Fed’s discount-rate hike, aiming to finish in positive territory for a fourth consecutive session.
Late yesterday the Fed boosted the rate it charges banks for emergency loans by a quarter-percentage point to 0.75%, which prompted fears as stock futures and bond prices fell while the dollar rose right after the announcement.
But the knee-jerk reaction faded and stocks have remained in positive territory for much of today’s session. Certainly a good sign, especially since today represents the market’s first test of how it can handle an environment titled toward tighter credit, Tom Petruno writes.
Fed boosting the discount rate isn’t surprising and shows it believes the financial system and overall economy are stabilizing. “The Fed used a word it will be repeating a lot in coming months: ‘normalization,’” Petruno says. “Normalization will mean gradually retreating from the emergency steps the Fed took to bolster the financial system and the economy.”
Of course any overreaction in the stock, bond or currency markets is the big risk, which could force the Fed to postpone its normalization moves, Petruno adds. “The ball now is in the markets’ court.”
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