Janet Yellen has been confirmed as the next chief of the Federal Reserve, making her the first woman in charge of the central bank in its 100-year history. Ms. Yellen is considered to be dovish when it comes to monetary policy. This may not mean too much. But, should the economy slip like it has each of the past few years – further tapering may be put off. There is even an outside chance that if the economy slows and inflation cools too much – we may see the Bond buying pick up.
Mortgage Bonds continue to trade in a sideways holding pattern. Prices are being capped by this week's risk events, which include tomorrow's Fed Minutes, additional Treasury supply and Friday's all-important December Jobs Report. Throw in tough overhead resistance at the 25-day Moving Average and you have a good possibility for a reversal lower. It is worth noting here that the 4% coupon managed to hit the 25-day MA resistance yesterday, but failed to break above that level and was pushed lower. We would not expect a convincing move above this ceiling with the aforementioned headline risk forthcoming.
The Treasury will be selling $30B 3-Year Notes and this shorter term paper will most likely be scooped up rather handily – but stay tuned for any surprises.