U.S. Yields Jump On Fed Chairman Speculation

US treasury yields jumped sharply overnight while stocks extended recent pull back on talk of the next Fed chairman. The dollar was steady though. There were speculations that former treasury secretary Larry Summers could become the next Fed chairman as Ben Bernanke steps down in January. Summers' hawkish stance led to concerns that the Fed would tighten monetary policy earlier than previously anticipated. Summers has already expressed his concerns on whether unemployment rate would drop to Fed's threshold of 6.5% before re-emergence of inflation risks. Meanwhile, Summers was also critical of the massive quantitative easing program. Current vice chairman, Janet Yellen, another potential candidate for the job, is a stronger support of Bernanke's ultra ease policy and a much more dovish policy maker. She has previously laid out a so called "optimal policy path" that would tolerate a bit higher inflation than Fed's 2% target to push down long term unemployment.

10-year yields jumped sharply to close at 2.884% after hitting an intra-day high of 2.899%. This months development carries some significance from long term perspective as TNX broke through a falling trend line since 2007's 5.316% and took out 55 months EMA. The development affirms the case that yield remains in multi year upward path and could head back towards the multi-decade channel resistance at around 3.9 level. And, such developments should support the greenback in the medium to long term.




Aussie droped sharply today after RBA minutes indicated that further rate cuts are still possible. In the RBA minutes for the August meeting, policymakers unveiled reasons for the rate cut to 2.5% on August 6. The central bank also did not rule out possibility for further monetary easing and any future move would depend on economic data. Path of Australian dollar is another important factor. The RBA stated that a decline in AUD would help balance the growth in the economy. The central bank has reduced the policy rate 8 times in 2011. Although rate hikes were adopted for several months as the economic showed signs of improvement, policymakers reverted to monetary easing amid concerns over the lack of growth engine as mining investment peaked, decline in commodity prices, slowdown in Chinese expansion and the global economic weakness. More in RBA Minutes Signaled Further Rate Cuts Possible.

Looking ahead: Japan will release all industry activity index today. German will release PPI while Canada will release wholesale sales.