Economist's Insights

Today’s Trading Activity – Dovish Take on Yellen’s Remarks Spurs Rally in Equities and Treasurys

Jul 12, 2017

Fed Chair Yellen’s prepared remarks, released before markets opened and ahead of her actual Senate testimony, roused U.S. assets early. Those remarks included a comment that she believes inflation’s response to the economy is the “key uncertainty” right now and echoed a Tuesday comment from Governor Brainard that the Fed may not have much further to go to get the overnight rate to its neutral level. Treasury yields as those comments crossed the wires, depicting the markets interpretation of these views. On the day, the 2-year yield dropped 3.2 bps to 1.34% while the 5- and 10-year notes fell roughly 4 bps to 1.87% and 2.32%, respectively. The Dollar initially tumbled but recovered to almost unchanged after a swift strengthening against the Euro and sharp weakening against the Canadian Dollar. Equity investors cheered Yellen’s tone and pushed all three major indices to strong daily gains and the Dow to a new record high. The Dow gained 0.7% as the S&P added 0.7% and the Nasdaq rallied 1.1%.