As Federal Reserve Chair Janet Yellen testified before the Senate banking committee on Tuesday, bond prices surged and rates sank, with the 10-year Treasury yield falling below 2 percent.
Traders clearly took her words to be more dovish (that is, more supportive of easy monetary policy) than anticipated. And as a result of the testimony, the federal funds futures have pushed expectations for the first rate hike further out in the year, so that the base case is now for an October rate hike, according to CME Group's FedWatch tool. (Never mind that no news conference is scheduled to follow the October statement, so the chance of a major policy change actually being enacted in October is small.)
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While Yellen's testimony held no great surprises, she did clarify in her prepared remarks that the Fed's insistence that it will stay "patient" in normalizing monetary policy means that the federal funds rate will not be raised "for at least the next couple of FOMC meetings."
For Brian Stutland of Equity Armor Investments, Yellen's words gave him a good reason to buy bonds indeed.
"Originally I felt like rates should move a little higher, that we should get a June rate hike. But with what Yellen has said today, what the Fed minutes talked about last week, what I've seen in the economic data over the last couple weeks—to me, it seems like a hold, maybe till the fourth quarter. To me, that means you want to be a buyer of bonds," he said Tuesday on CNBC's "Futures Now."
Stutland predicts that the 10-year yield is headed back to 1.9 percent.
"So right now, I think you have to at least hold some bonds in your portfolio, because there's this bullish/dovish tone in the bond market. And I think it's going to be a little bit of time until we see rates push a lot higher."