Janet Yellen, the Federal Reserve's influential vice chair, said on Monday the central bank's aggressive monetary stimulus is warranted given how far below its full potential the economy is operating.

Downplaying the potential costs of the Fed's unconventional easing efforts, which currently include $85 billion in monthly asset purchases, Yellen highlighted the dangers of a prolonged period of economic malaise.

"Insufficiently forceful action to achieve our dual mandate also entails costs and risks," Yellen told a conference sponsored by the National Association of Business Economists. "At present, I view the balance of risks still calling for highly accommodative monetary policy to support a stronger recovery and more rapid growth in employment."

New York City business activity expanded at the fastest pace in 11 months, according to the survey taken by the Institute for Supply Management-New York (ISM-NY). Current Business Conditions came in at 58.8 in February.

The headline index has been on a steadily improving path since last May, with October’s hiccup from Hurricane Sandy the noticeable blemish.

The Six-Month Outlook rose to 64.1 in February, bouncing off January’s four-month low.

Employment fell to a nine -month low of 49.3 in February and has been uneven, below the breakeven 50 mark in two of the last three months.

Quantity of Purchases, 62.5 in February, matched December’s 19-month high.

Asian hours kicked off the week of trading with a slight extension of Friday afternoon's Treasury mini-rally (experienced as flatness in MBS). China's move to increase housing costs for 2nd homes in bustling cities sapped a broad swath of Asian equities indexes, helping out bond markets marginally. The Nikkei, however, managed to improve after the leading nominee to govern the Bank of Japan said, if elected, he'd put no limit on the amount of QE conducted by the Bank in the effort to fight deflation. In addition to helping lift Japanese stocks, this was also bond-market friendly.

10yr Treasuries made it as low as 1.828 just after European markets opened but the balance of the European session was moderately negative for German Bunds and Treasuries with two big bounces at 1.2983 in Euro (slightly higher than Friday's 1.2965--a two month low). Equities futures improved after falling in concert with Asian indexes and the stock lever has been somewhat connected overnight and into domestic hours.

Volatility increased modestly in early domestic trading with 10yr yields and MBS both moving into the red after opening slightly stronger. 10's are currently down just over half a bp at 1.8515 and Fannie 3.0 MBS are 3 ticks worse at 103-18. S&P futures are still 3 points from matching Friday's 4pm levels and European markets are slowing down their late-session "risk-on" move.

There is no significant economic data scheduled for the domestic session, leaving tradeflows, technicals, and the stock lever in play for the rest of the day. In those regards, the stock lever has been relatively less connected than it otherwise might be and tradeflows have been more negative for bond markets than positive. In most ways, this is to be expected with 10's having collided with epic technical resistance in the 1.84 neighborhood. In this morning's Week Ahead we noted that the events later in the week were more likely to make firmer technical suggestions than the relatively barren calendars earlier in the week.

Janet Yellen, the Federal Reserve's influential vice chair, said on Monday the central bank's aggressive monetary stimulus is warranted given how far below its full potential the economy is operating.

Downplaying the potential costs of the Fed's unconventional easing efforts, which currently include $85 billion in monthly asset purchases, Yellen highlighted the dangers of a prolonged period of economic malaise.

"Insufficiently forceful action to achieve our dual mandate also entails costs and risks," Yellen told a conference sponsored by the National Association of Business Economists. "At present, I view the balance of risks still calling for highly accommodative monetary policy to support a stronger recovery and more rapid growth in employment."

New York City business activity expanded at the fastest pace in 11 months, according to the survey taken by the Institute for Supply Management-New York (ISM-NY). Current Business Conditions came in at 58.8 in February.

The headline index has been on a steadily improving path since last May, with October’s hiccup from Hurricane Sandy the noticeable blemish.

The Six-Month Outlook rose to 64.1 in February, bouncing off January’s four-month low.

Employment fell to a nine -month low of 49.3 in February and has been uneven, below the breakeven 50 mark in two of the last three months.

Quantity of Purchases, 62.5 in February, matched December’s 19-month high.

Asian hours kicked off the week of trading with a slight extension of Friday afternoon's Treasury mini-rally (experienced as flatness in MBS). China's move to increase housing costs for 2nd homes in bustling cities sapped a broad swath of Asian equities indexes, helping out bond markets marginally. The Nikkei, however, managed to improve after the leading nominee to govern the Bank of Japan said, if elected, he'd put no limit on the amount of QE conducted by the Bank in the effort to fight deflation. In addition to helping lift Japanese stocks, this was also bond-market friendly.

10yr Treasuries made it as low as 1.828 just after European markets opened but the balance of the European session was moderately negative for German Bunds and Treasuries with two big bounces at 1.2983 in Euro (slightly higher than Friday's 1.2965--a two month low). Equities futures improved after falling in concert with Asian indexes and the stock lever has been somewhat connected overnight and into domestic hours.

Volatility increased modestly in early domestic trading with 10yr yields and MBS both moving into the red after opening slightly stronger. 10's are currently down just over half a bp at 1.8515 and Fannie 3.0 MBS are 3 ticks worse at 103-18. S&P futures are still 3 points from matching Friday's 4pm levels and European markets are slowing down their late-session "risk-on" move.

There is no significant economic data scheduled for the domestic session, leaving tradeflows, technicals, and the stock lever in play for the rest of the day. In those regards, the stock lever has been relatively less connected than it otherwise might be and tradeflows have been more negative for bond markets than positive. In most ways, this is to be expected with 10's having collided with epic technical resistance in the 1.84 neighborhood. In this morning's Week Ahead we noted that the events later in the week were more likely to make firmer technical suggestions than the relatively barren calendars earlier in the week.

New York City business activity expanded at the fastest pace in 11 months, according to the survey taken by the Institute for Supply Management-New York (ISM-NY). Current Business Conditions came in at 58.8 in February.

The headline index has been on a steadily improving path since last May, with October’s hiccup from Hurricane Sandy the noticeable blemish.

The Six-Month Outlook rose to 64.1 in February, bouncing off January’s four-month low.

Employment fell to a nine -month low of 49.3 in February and has been uneven, below the breakeven 50 mark in two of the last three months.

Quantity of Purchases, 62.5 in February, matched December’s 19-month high.

Janet Yellen, the Federal Reserve's influential vice chair, said on Monday the central bank's aggressive monetary stimulus is warranted given how far below its full potential the economy is operating.

Downplaying the potential costs of the Fed's unconventional easing efforts, which currently include $85 billion in monthly asset purchases, Yellen highlighted the dangers of a prolonged period of economic malaise.

"Insufficiently forceful action to achieve our dual mandate also entails costs and risks," Yellen told a conference sponsored by the National Association of Business Economists. "At present, I view the balance of risks still calling for highly accommodative monetary policy to support a stronger recovery and more rapid growth in employment."