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Macquarie Looks for 3% 10-Year Yield as Yellen’s Dots Connected

Janet Yellen
Janet Yellen, chair of the U.S. Federal Reserve, speaks during a news conference following a Federal Open Market Committee (FOMC) meeting in Washington, D.C. on March 19, 2014. Photographer: Andrew Harrer/Bloomberg

March 20 (Bloomberg) -- Janet Yellen told investors yesterday not to bother looking at the “dot plot” of Federal Reserve interest rate forecasts.

So what is Wall Street fixated on today? The dot plot, of course.

The points in question are projections for how much the central bank will eventually lift the federal funds rate, which it’s kept near zero since 2008, and when the tightening will begin. In what Goldman Sachs Group Inc. Chief Economist Jan Hatzius called a “hawkish shift in the dots,” the forecasts show more officials predict the rate will rise at least to 1 percent at the end of 2015 and 2.25 percent by the end of the following year, higher than previously forecast.

Treasuries sank as the dots shifted, sending 10-year yields up 10 basis points. At Macquarie Group Ltd., global interest rates strategist Thierry Albert Wizman called the bond market’s reaction yesterday “a bit excessive.” Still, he wrote, “bond yields are going in the direction that they should be going.” Interest rates should go up as the economy accelerates so Wizman is calling for Treasury yields to “edge toward 3 percent in coming weeks” from the current level of about 2.78 percent.

At Credit Suisse Group AG, the slide in bonds and the surge in puts to sell Treasuries caused their option sentiment indicator to flash a buy signal for 10-year U.S. notes after their tumble yesterday.

“Historically, 10s have rallied 62 percent of the time over the two days following a buy signal,” Credit Suisse analysts Carl Lantz and William Marshall wrote in a note to clients. The signal is not flashing a full recovery from yesterday’s tumble. The indicator was followed by an average rally of 1.5 basis points over that time horizon, the analysts wrote.

‘Below the Dots’

Using yesterday’s slide in Treasuries as a buying opportunity would be a mistake, Citigroup Inc. strategist Amitabh Arora wrote in a note.

“Market pricing continues to be below the ‘dots’,” Arora wrote in a note.

All this connecting of the dots comes following Yellen’s remarks that the fed funds rate could be lifted six months after the central bank ends its bond-purchase program, which may be this autumn in the U.S.

“One should not look to the dot plot so to speak as the primary way in which the committee wants to or is speaking about policy to the public at large,” she said.

So far, much of Wall Street is ignoring that advice and placing bets based on where the dots landed. At least until the college basketball games start around lunchtime and the real gambling begins.

To contact the reporter on this story: Michael P. Regan in New York at

To contact the editors responsible for this story: Lynn Thomasson at Chris Nagi

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