{"id":29804,"date":"2015-07-17T00:24:37","date_gmt":"2015-07-17T05:24:37","guid":{"rendered":"http:\/\/prefblog.com\/?p=29804"},"modified":"2015-07-17T00:24:37","modified_gmt":"2015-07-17T05:24:37","slug":"july-16-2015","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=29804","title":{"rendered":"July 16, 2015"},"content":{"rendered":"

The treasury curve flattened today<\/a>:<\/p>\n

Enough distractions! Treasury investors are turning their attention back to the business of when U.S. interest rates go up.<\/p>\n

The yield curve has flattened the most in four months in a week when Greece signed a deal to secure more bailout aid and a bear-market rout in Chinese stocks stabilized, allaying concern that turmoil abroad would delay the Federal Reserve\u2019s first rate increase since 2006. Fed Chair Janet Yellen made it plain over two days of testimony before Congress this week that she believes the central bank can raise interest rates in 2015.
…<\/b>
The difference between yields on two- and 30-year government debt has narrowed 9.4 percentage points this week to 246 basis points. It reached 244 basis points Thursday, the least since July 9.<\/p><\/blockquote>\n

Yellen’s testimony preached restraint<\/a>:<\/p>\n

Speaking Thursday before the Senate Banking Committee, Yellen said that raising rates prematurely could derail the recovery. Waiting too long, on the other hand, might force the Fed to tighten at a faster pace to keep the economy from overheating.<\/p>\n

\u201cMy own preference would be to be able proceed to tighten in a prudent and gradual manner,\u201d she said.<\/p>\n

Yellen\u2019s comments this week were consistent with her often-stated advice to investors: the date of liftoff matters less than the subsequent pace of increases. And she has assured them that those increases would be measured.<\/p>\n

The concern that tightening prematurely could throw the recovery off track is one reason why the federal funds rate has been kept near zero as long it has, Yellen said.<\/p>\n

\u201cWe also want to be careful not to tighten too late because, if we do that, arguably we could overshoot both of our goals and be faced with this situation where we would then need to tighten monetary policy in a very sharp way that could be disruptive,\u201d she told lawmakers.
…<\/b>
Yellen offered other reasons for an upbeat assessment of the economy in her testimony Thursday. She said the job market is returning to a \u201cmore normal state,\u201d even though the 5.3 percent unemployment rate understates the degree of slack. And she expects to see further gains in wages.<\/p>\n

Fed officials say they will let the latest data on employment and inflation guide their decision on when to raise rates. To drive the point home, the San Francisco Fed has printed T-shirts with the message: \u201cMonetary Policy — It\u2019s Data Dependent.\u201d<\/p><\/blockquote>\n

Only in America would the central bank print t-shirts!<\/p>\n

By way of context, here’s the historical 2-year and 30-year Treasury yields from FRED:<\/p>\n

\"2_30_Treasuries_A\"<\/a>
Click for Big<\/i><\/div>\n

and the spread between the two:<\/p>\n

\"2_30_Treasuries_spread_A\"<\/a>
Click for Big<\/i><\/div>\n

Note that there’s a gap in the 30-year series during the period in which they didn’t exist<\/a>. That was the peace dividend<\/a>.<\/p>\n

And there’s more squabbling over the ORPP<\/a>:<\/p>\n

Ottawa is putting Queen\u2019s Park on notice that it will not help set up a provincial pension plan.<\/p>\n

Finance Minister Joe Oliver wrote to his provincial counterpart on Thursday afternoon saying that Ottawa would not help collect contributions or make the legislative changes the province would likely require.<\/p>\n

\u201cThe Ontario Government\u2019s proposed [plan] would take money from workers and their families, kill jobs, and damage the economy,\u201d Mr. Oliver wrote in the letter, which was obtained by The Globe and Mail.<\/p>\n

\u201cFurthermore, it would impose a one-size-fits-all scheme on Ontarians and their families, without consideration for their age, family situation or financial circumstance.\u201d
…<\/b>
According to Mr. Oliver\u2019s letter, Ontario officials have approached federal civil servants in recent months to discuss the possibility of having the federal government involved in the administration of the new provincial plan.<\/p>\n

\u201cWe will not assist the Ontario government in the implementation of the ORPP,\u201d Mr. Oliver wrote to Ontario Finance Minister Charles Sousa.<\/p>\n

\u201cThis includes any legislative changes to allow the ORPP to be treated like the Canada Pension Plan for tax purposes, or to integrate the ORPP within the [registered retirement savings plan] contribution limits. Administration of the ORPP will be the sole responsibility of the Ontario Government, including the collection of contributions and any required information. We will be pleased to discuss with the Ontario Government the potential for voluntary contributions to the CPP, which we believe would better serve the interests of Ontarians and all Canadians.\u201d<\/p><\/blockquote>\n

DBRS kept the ratings of the Big-6 banks’ senior debt on Trend-Negative today, confirming their conclusion reported in May<\/a>:<\/p>\n