Yellen Tames Bond Traders

Volatility reaches pre-tapering levels as the Fed chair reassures investors interest rates won't increase immediately.

When it comes to monetary policy, Federal Reserve Chair Janet Yellen is doing all she can to ensure there’s little difference between herself and Ben S. Bernanke. The bond market is taking notice.

Measures of volatility based on interest-rate swaps have plunged this year and are now approaching levels not seen since before the Fed first signaled in May its intention to reduce the unprecedented bond buying that’s supported the U.S. economy, according to data compiled by Bloomberg.

“Much of the 2013 rate volatility was driven by uncertainty in the outlook for Federal Reserve policy,” Jake Lowery, a money manager in Atlanta at ING U.S. Investment Management, which oversees $200 billion, said by telephone on Feb. 25. This year, “the relative certainty in the near-term direction of Fed policy has had its own suppressive effect.”

Although the harsh winter weather contributed to retail sales, manufacturing, and housing data that fell short of economists’ estimates, Yellen reiterated on Feb. 27 that the central bank is likely to keep curtailing its stimulus.

American Optimism

“The economic data has been very distorted,” Chaigneau said in a Feb. 24 telephone interview from Paris. “By spring, when the data improves again, we’ll get some significant market action. Rates will increase and volatility will increase.”

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