Daily Market Color July 12, 2017Yellen’s Dovish Testimony Drives Treasury Yields Lower While Stocks Rally Both US stocks and Treasury prices rose during today’s trading session in response to the commentary from Federal Reserve Chair Janet Yellen in her semiannual monetary policy testimony before the House Financial Services Committee. In her prepared statement, Yellen repeated much of the same rhetoric as financial markets have grown accustomed to over the past few months, stating the plan for the unwinding of the Fed’s $4.5 trillion balance to begin later this year while maintaining a gradual pace of rate hikes, albeit Yellen did comment that the long-run neutral rate was not far off. She also reaffirmed her expectation that the current factors holding down inflation would subside over the next few months, but did add in the caveat that “we’re watching this very closely and stand ready to adjust our policy if it appears that the inflation undershoot will be persistent.” Overall, Yellen’s words were perceived as a bit more dovish than expected, leading to a rally in both equities and Treasurys. All three major US stock indices closed up 0.6%-1.1%, led by rises in real-estate and technology shares. Treasury yields/swap rates are 3-5 bps lower across the curve, bringing the yield on the 10-year note near 2.32%. The trend towards the reduction of monetary stimulus by global central banks continued today as the Bank of Canada raised its benchmark borrowing rate for the first time in seven years. The BoC’s policy rate was increased by a quarter point to 0.75% in reflection of the robust economic growth over the past year which has been fueled by Canadian household spending. In explanation of the hike and looking forward to a further reduction in monetary stimulus, the released statement by the BoC said that the “Governing Council judges that the current outlook warrants today’s withdrawal of some of the monetary policy stimulus in the economy. Future adjustments to the target for the overnight rate will be guided by incoming data as they inform the Bank’s inflation outlook, keeping in mind continued uncertainty and financial system vulnerabilities.” The Canadian dollar gained more than 1.5% against the dollar after the announcement while the yield on the Canadian 10-year note increased more than three basis points. In regulatory news, as part of its KISS Initiative, the CFTC issued an announcement that they are reviewing the current swaps reporting regulations to ensure a more streamlined and effective process. This is one of the many steps in Acting Commissioner Christopher Giancarlo’s desire to simplify the regulations. The Commission provided a guide to outline their goals with this initiative. The review will focus on ensuring that the CFTC receives accurate, complete and high-quality data as well as finding efficiencies in the process. Market participants, including swap data repositories and other regulators are encouraged to provide comments through August 21, 2017.