Rate-Indicative Yield Rises in Wake of Fiscal Cliff Deal, Fed Bond Buying Speculation

Now that officials have exited fiscal cliff talks, there is some upward pressure on rates. Image: Fotolia

The long-term rate-indicative Treasury yield, which started the week at levels close to 1.7%, had surpassed 1.9% as of Friday morning in reaction to the deal struck to avert the fiscal cliff and Federal Reserve minutes that suggested some officials have considered ending asset purchases this year.

DB Advisors’ global chief economist Josh Feinman attributed the upward move in the benchmark Treasury yield primarily to the fiscal cliff deal, but believes the speculation about asset purchases in the Fed minutes also contributed.

“I’d be careful about over-interpreting the Fed minutes though,” he said. “There are differences of opinion (among officials). It would be surprising if they weren’t. It doesn’t necessarily mean that you should have a firm date in mind as to when these asset purchases might slow or stop.

“I don’t think the economy is going to slow these asset purchases or stop them until the economy is looking better, and if the economy were looking better, that would be great,” he added.

Feinman said if improvements to the economy and employment remain moderate, “then the Fed will probably continue these asset purchases for the rest of this year.”

When asked if Friday’s moderate employment report reflects growth in line with maintaining asset purchases, About.com U.S. economy expert and global business consultant Kimberley Amadeo told this publication, “I think the Fed will continue on a path of easing…that’s going to keep rates low.”

“Unless unemployment (or inflation) hits the Fed’s target level…it’s going to maintain the course,” she said. “Most people don’t see that happening until 2014.”

Amadeo said the resolution of the fiscal cliff does pave the way for more economic growth, but she also noted that the debt ceiling debate that comes next could temporary introduce more uncertainty until it is resolved.

“I think that will get squared away in the first quarter,” she said.