It felt like being held after school by the principal.
There was no reason for bond traders to be in the office on Friday -- except for Janet Yellen. It was sunny and 81 degrees in New York, the day before a three-day weekend. Nothing was happening in markets. A perfect beach day.
But it wasn't perfect because Federal Reserve Chair Yellen thought it would be a great idea to give a speech at 1:15 p.m., with plans to finish just before the early 2 p.m. bond market close.
You could just hear the teeth grinding on Wall Street. In fact, one person went so far as to call it "dangerous" should Yellen say anything of import at such a slow time in markets. Of course it's dangerous! Just think of all the traders crowding into just a few helicopters at 5 p.m. to get to the Hamptons, rather than spreading their departures out over the whole day.
And then there was the off chance that Yellen could enthusiastically support raising interest rates in June. Or to the contrary, she could say she was so worried about Brexit and China and Greece and Donald Trump that there’s no way she’d vote to increase benchmark borrowing costs ever again.
Basically, no one wanted to miss a market move. So instead of scuttling off to the beach, or prepping hamburgers for a barbecue, traders fired up their computers and waited. And waited. And checked the traffic. And waited some more.
And then it began, with Yellen looking comfortable during the question-and-answer panel led by Harvard economist Greg Mankiw. We found out that she's pro-capitalism, learned something in economics class, likes helping people and doesn't want another financial crisis.
The tension and frustration was so palpable that, after waxing philosophical about economics for a bit, Mankiw finally addressed the issue head on, noting that traders had delayed their long weekends for this. So to cut to the chase, was there anything she had to say to them? She did. She said growth was picking up and that "it's appropriate for the Fed to gradually and cautiously increase our overnight interest rate over time."
She added, "Probably in the coming months such a move would be appropriate."
In other words, June and July are likely options for a rate increase. Markets got the message and moved.
Here are 2-year Treasury yields:
And the dollar:
And the S&P 500:
These moves weren't that big, but they were better than nothing. The traders who stuck around can justify it and head out to the beach, telling themselves in the traffic jam that they persevered over their delinquent peers. While the moves may evaporate on Tuesday when everyone returns, Yellen's comments definitely moved the needle to the category of when the Fed acts this year, not if. That's got to be worth something to the diligent who stayed behind.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
To contact the author of this story:
Lisa Abramowicz in New York at firstname.lastname@example.org
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