Feb 24. Yellen in front of Senate banking Committee
–The curve flattened Monday with tens down over 7 bps to 265. Red/gold euro$ pack spread fell 4.875 bps to just over 125, with reds +4.25 and golds outperforming +9.125. Treasury implieds were little changed in front of Yellen’s testimony today, although there continues to be call accumulation, moving down a strike to TYM 129.5c yesterday. Some risk reversals buying calls in both April five years and Green June dollars.
–Yellen begins her testimony in front of the Senate banking committee today with stocks near all time highs, and the dollar continuing to show strength. Oil and EUR are right around the same levels as late January’s FOMC meeting, however stocks are higher as are ten year yields. Yellen is likely to stress data dependency and gradual actions, and will likely touch upon international risks (as noted in the last statement) and financial stability. I think she is likely to dismiss disinflationary concerns. In terms of financial stability, the rise in stocks and decline in junk bond spreads is perhaps indicative of “yield reach” which may be a concern. I think that her comments might lean slightly more hawkish overall, but I am in the minority with that view.
–Greece submitted their proposals for reforms which will likely provide a basis for ongoing negotiations. Treasury auction of two year notes which should find solid support.
