Bonds, stocks rally, after Yellen emphasizes flexibility
By David Gaffen
NEW YORK (Reuters) - U.S. equities rose and bond yields fell after U.S. Federal Reserve Chair Janet Yellen said on Tuesday it would be several months before the Fed expects to boost interest rates, while European equity markets gained after Greece locked in a four-month extension of its financial rescue program.
Yellen said the Fed's policy-setting committee is considering interest rate hikes "on a meeting by meeting basis." She added, however, that a rate increase is not likely for at least the next couple of meetings, and that the first hike would not necessarily come after the Fed removes the word "patient" from its forward guidance.
Short-term rate futures have shifted market expectations modestly, with the first hike now expected in October, instead of September before Yellen's testimony. Expectations for a possible June increase have been reduced. Strategists said Yellen was giving the Fed more flexibility to raise rates later if necessary.
"It’s very cautious and very couched. She’s leaving all her options open as she should be," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.
The greenback jumped initially but paired gains and was down 0.1 percent against a basket of currencies .DXY. U.S. 10-year Treasury yields US10YT=RR initially rose to about 2.11 percent, but subsequently declined to 1.98 percent.
"They're trying to give themselves more flexibility without locking themselves into a commitment one way or the other, which in general can be perceived as being dovish," said Jonathan Rick, interest rate derivatives strategist at Credit Agricole in New York.
Wall Street stocks rose. The Dow Jones industrial average .DJI gained 92.35 points, or 0.51 percent, to 18,209.19, the S&P 500 .SPX gained 5.82 points, or 0.28 percent, to 2,115.48 and the Nasdaq Composite .IXIC added 7.15 points, or 0.14 percent, to 4,968.12. The Nasdaq has posted gains in 10 consecutive sessions, the longest streak since July 2009.
Gold XAU= fell to near a seven-week low of just below $1,194 an ounce before recovering to $1,199.45. Expectations for rate hikes this year have curbed gold's safe-haven appeal in recent weeks. Continued...