Well, yesterday marked an important milestone as QE 3 was put to rest by Janet Yellen as she eliminated the final 15 billion per month in bond buying. One would have thought that Treasury yields would have spiked dramatically after the announcement, but quite the opposite happened. In fact, longer dated yields actually fell quite noticeably. Even today, longer dated yields are continuing to go down. With all the bond buying over the coarse of the last several years the supply has been diminished quite substantially. So, even though the Fed for the better part of this year has been reducing there buying almost regularly it seems that due to supply and demand issues the prices have held firm. It would have been very hard to predict that the 10-Year Treasury would touch 2.20% this year and never come close to 3%. In addition, who would have thought that long term treasuries would be one of the best performing asset classes YTD.
A lot of people see the latest Fed statement yesterday as Hawkish, but I think Janet Yellen left her self enough wiggle room that if the data does not continue on an upward path she has the tools to step right back into some form of quantitative easing. Also, the European Central Bank has firmly pledged to continue to support global markets and step up there efforts should they be needed.
As we finish the year markets have strong traditional seasonality on there side. Where will we go from here now that the perception of the FED being out of the markets is here? Well, that is a question not many people can answer.
Eric Marvin
Past Performance is no guarantee of future results. Please consult with your own financial advisor before embarking on any investment plan.
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