Fed Chair Janet Yellen stood before the House Financial Services Committee this morning to give her first report to Congress since taking the helm. It was clear from her pre-prepared statement that she intends to differentiate herself from her predecessor, but not by radically changing policy.
Yellen’s performance was notable for its brevity, it would appear the days of central bank obfuscation – mastered by former chairmen like Alan Greenspan — are clearly over. And not a minute too soon, some would say.
However, she made it clear that she doesn’t want to rock the boat or quickly deviate from the course set by previous captain Ben Bernanke.
Despite not changing policy, Yellen did set out a roadmap for forward guidance. Here’s what she said:
The Committee has emphasized that a highly accommodative policy will remain appropriate for a considerable time after asset purchases end. In addition, the Committee has said since December 2012 that it expects the current low target range for the federal funds rate to be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation is projected to be no more than a half percentage point above our 2 percent longer-run goal, and longer-term inflation expectations remain well anchored. Crossing one of these thresholds will not automatically prompt an increase in the federal funds rate, but will instead indicate only that it had become appropriate for the Committee to consider whether the broader economic outlook would justify such an increase.
As for tapering, don’t expect any surprises here either:
If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. That said, purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on its outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.
So there you have it, Yellen is clearly a dove but she is not Bernanke in a dress. She has clearly listened to comments about Fed obfuscation which was taken to new levels by her predecessor. From now on she will tell it how it is. If nothing else it should keep her press conferences shorter.
Todays Other Top Stories
LearnBonds: – Puerto Rico municipal bonds – Are they a buy? – No discussion of the municipal markets would be complete without mentioning Puerto Rico. Other than the nightmare which is Detroit (where bondholders could be crammed down in favor of public employee pensions), Puerto Rico has been the dominant story in the municipal debt world.
Reuters: – Puerto Rico governor seeks legislative OK for $3.5 bln in GO bonds. – Puerto Rico Governor Alejandro Garcia Padilla has asked the legislature for approval to borrow up to $3.5 billion with new general obligation bonds.
NYT: – After setbacks, municipal bond sector is looking up. – The municipal bond market has been judged lately more by its failures than its successes, and the judgment has been harsh. But there are signs we have turned a corner.
ValueWalk: – Puerto Rico’s junk bonds still attracting interest. – Puerto Rico municipal bonds have been downgraded to junk status, but the re-rating seems to have already been priced in, creating an opportunity for investors who aren’t limited by restrictions on their high yield exposure.
Bloomberg QuickTake: – Puerto Rico’s slide. – Puerto Rico has the population of Oklahoma and a gross domestic product smaller than Kansas’s. It also has more debt, $70 billion, than any U.S. state government except California and New York. This fact and the reasons behind it help explain why the island has tumbled over a fiscal cliff. And why the resulting dismay extends to investors far beyond the island’s borders. It’s a tale of financial mismanagement, Wall Street complicity and good intentions gone awry.
WSJ: – Puerto Rico expects to issue bonds to refinance some debt. – Puerto Rico on Tuesday hired banks for an upcoming sale of as much as $3.5 billion in bonds, as the U.S. territory seeks to shore up its finances following a credit-rating downgrade, said people familiar with the offering.
FT Adviser: – Government bonds – which country is safest? – With just 10 countries still rated AAA by the three main rating agencies, is there still value in sovereigns?
WSJ: – Investors ramp up bets that U.S. government debt will fall. – Investors are ramping up their bets that U.S. government debt will fall in value after an unexpected rally in the Treasury market this year amid concerns the U.S. economic recovery is foundering.
Businessweek: – U.S. Bill sale shows calm before debt-limit vote. – Treasury-bill auctions suggest investors are betting U.S. lawmakers will successfully raise the nation’s borrowing limit after Speaker John Boehner said the House will vote on the measure with no conditions attached.
Donald van Deventer: – International business machines: A bond market ranking. – In spite of recent financial performance, the default probabilities for International Business Machines Corporation are the lowest in its peer group for time horizons of 5 years or more. The company’s bonds offer a reward to risk ratio that is slightly better than the median for all fixed rate corporate bonds which traded at least $5 million in volume on February 7.
Businessweek: – IBM pays more to borrow in bond market as sales decline. – International Business Machines Corp. borrowing costs are rising even as those of its peers fall, underscoring concerns that the world’s largest seller of computer services is struggling to find its place in the cloud.
FT Adviser: – High-yield corporate bonds could repeat 2013’s performance. – The high-yield corporate bond market was a star performer in 2013 compared with other fixed income assets, which generally had a torrid time.
FT Adviser: – High yield triumphs as income-hungry investors boost bonds. – Which fixed income markets and funds were the ones to target in 2013?
FT Adviser: – Tapering could weigh on emerging market debt in 2014. – Emerging market debt had a torrid time in terms of performance last year. Will 2014 be any better?
James Picerno: – Asset allocation and rebalancing review. – deciding if it’s timely to rebalance, or not, begins with the numbers. Let’s review how the returns for the major asset classes compare with our standard set of ETF proxies using a 250-trading-day window.
About.com: – Now isn’t the time to pick bond funds based on past performance. – Investors often fall into the trap of picking funds based on their past performance. After all, it’s a lot easier to look at a single number than to dig deep into a fund to figure out what makes it tick. That’s never a good idea, but it’s particularly unwise when it comes to choosing a bond fund right now.
ValueWalk: – Are returns of intermediate bond funds persistent? – In the search for skillful managers, the most valued characteristic is persistence – the ability of a manager to achieve superior returns consistently over time. Finding such managers is critical for fixed-income allocations, since the theoretical basis for indexing is weaker than it is for equities. Our study found, however, that persistence is elusive among a large sample of taxable bond funds.
Zacks: – Zacks #1 ranked government bond mutual funds. – Mutual funds investing in debt securities are among the most secure investment options which provide regular income while protecting capital invested. Funds which are part of this category bring a great deal of stability to portfolio which a large proportion of equity, while providing dividends more frequently than individual bonds. U.S government bonds funds usually invest in Treasury bills, notes and securities issued by government agencies. They are considered to be the safest in the bond fund category and are ideal options for the risk-averse investor.
Daily Finance: – How bonds could beat the dow in 2014. – Although we don’t believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes — just in case they’re material to our investing thesis.
Jeffrey Rosen: – The bond market agrees with us, All is not OK with the economy. – The ten-year Treasury yield has declined steadily since the FOMC announced its tapering decision at the end of December. There is some talk that the drop in yield is a confirmation of the Fed’s ability to affect long-term interest rates by issuing forward guidance. We never bought into that notion and the bond market seems be agreeing with us.
Gross: #Yellen pivots to inflation vs unemployment. Watch the PCE monthly more than “employment Fridays.” First Fed hike? Maybe 2016.
— PIMCO (@PIMCO) February 11, 2014
There were 110 sub-50 cent trades on non-zero-cpn #PuertoRico bonds yesterday, up from last week’s average of 45…
— Muni Market Advisors (@Muni_Mkt_Advis) February 11, 2014
BREAKING: @FitchRatings Downgrades Puerto Rico GOs Two Steps to BB, Outlook Negative. (Note: No impact on COFINA ratings)
— Brian Chappatta (@BChappatta) February 11, 2014
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