Europe and the US serenaded each other this morning with a hot rendition of "Dueling Bankers." Not to be confused with dueling banjos, this song features the respective heads of the ECB and Federal Reserve mirroring and matching each others' riffs, slightly picking up the tempo and complexity as the song progresses. Come to think of it, it's a lot like dueling banjos. Just replace the banjo notes with comments from Yellen and Draghi about rates and inflation.
Draghi was first up, and his comments on the ECB being not merely "ready to act" any longer, but actually "comfortable acting at the next meeting" got European bond markets a bit excited. During that part of the song, European bond markets led the move, but US Treasuries followed to a reasonable extent, hitting new lows for the day.
Then it was Yellen's turn. She said "interest rates are unlikely to begin rising until we're in a strong economic recovery" and also indicated that labor markets would need to keep improving for QE to finish in the Fall. This time around, US Treasuries led the charge and European bonds merely moved back to their Draghi-inspired low yields. Treasuries and MBS made new price highs for the day with Fannie 3.5s up to an impressive 102-16. 10yr yields, however, are still resisting a break below 2014 lows, hovering around 2.59 at the moment.
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