hello and welcome back to the notes we
had a very dramatic
in banking stocks to start the day today
not surprising given how far they had
sold down and then we had the much
awaited testimony from Janet Yellen to
Congress where she did a very good job
of not creating any new news basically
the message is that there could well
still be more rate rises to come this
year if the economic data support it not
the faintest hint that we could be
heading towards negative rates as many
in our fear now that led to quite a
positive reaction from the markets at
first but by the end of the day the
forces that have been dominating for a
while came back to predominate if we
take a look at this chart it shows you
the yield curve the spread of 10 / 2
year Treasury yields you can see that we
have now dropped below a hundred basis
points for the first time since the
crisis it's a very precipitate fall
we've seen in the last few weeks and on
the face of it it is a clear signal that
the market is worried about a possible
recession coming it's when you begin to
expect that there won't be any great
rise in interest rates in the future
that you're thinking that there's going
to be low growth and low inflation now
there is a clear explanation for why
this is going on however which is the
ongoing reaction to the monetary
policies of the european central bank
and the bank of japan if we take a look
at this next chart which shows you
10-year government yields for the US the
eurozone in japan you can see that in
japan following the Bank of Japan's
surprising move at the end of last month
interest rates on 10-year bonds are
actually negative and we all know that
Japan has been in a slump for a very
long time but that's actually as you can
see a new development similarly you've
seen German bund yields fall back down
again it's no surprise there for that
long Treasury yields are also coming
under pressure if you've got that kind
of competition it's not surprising that
even the low yields on offer here in the
states are appealing that in turn will
push the yield down further as the
results by the end of the day we saw the
door
a fall significantly once more s for the
stock market yesterday it was almost
flat but rallied into the close keep
making people feel more optimistic this
time it was almost flat but fell into
the clothes probably signaling that
after the bounce back in banks after
we've got through yellen's testimony we
will get back to continued rather great
angst