Stocks and Bonds Both Rally on Delayed Rate Hike Expectations

US stocks are trading near year-to-date highs while Treasurys are rallying marginally across the curve one day after Fed Chair Yellen pushed back the market’s perception of the timeframe for the next rate hike from the “coming months” to “gradually over time”.  Yellen left all options on the table while reiterating that positive economic forces currently outweigh the negative forces, but the market interpreted her speech as more dovish following last week’s disappointing payrolls report.  Yellen’s acknowledgement that the UK referendum vote on June 23rd could have significant economic repercussions effectively put an end to any expectations of a June rate hike, even though she didn’t explicitly rule it out.
 
The Fed is now in the blackout period ahead of next week’s FOMC meeting and the economic calendar is absent of any significant tier 1 economic data releases today.  There is a $24-billion 3-year note auction this afternoon, and investors continued to monitor oil prices, which are currently trading close to eight-month highs off the back of the weaker dollar and falling inventories.  Supply has come under pressure in recent months due to a series of unplanned outages in oil-producing countries including Canada, Venezuela, Libya and Nigeria, as well as a decline in US shale output.  WTI and Brent crude are both up close to 1% on the day, trading above $50 and $51 per barrel, respectively. 

The Dow and S&P 500 are both up close to 0.50%, while the tech-heavy NASDAQ trades unchanged.  US Treasury yields and swap rates are both down 2-3 bps across all major maturities.