The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
It looks like the normally non-emotional bond market is throwing a little hissy fit.
The reason? Investors are worried that the Federal Reserve might finally shut off the low interest rate policy that's been resuscitating the American economy for nearly six years.
For evidence of this minor panic attack, look no further than the yield on the benchmark 10 Year U.S. Treasury. It's shot up in the past few weeks in anticipation of the Fed's next policy statement, a new round of economic projections and a press conference from Fed chair Janet Yellen. That's all happening on Wednesday afternoon.
But is it really last call for stimulus? Not so fast.
Yes, the Fed is likely to announce Wednesday that it is once again cutting back on its monthly bond purchase program.
And quantitative easing, or QE for short, is likely to be done for good following the October meeting.
This means financial journalists and economists can finally stop using the word taper unless we're referring to the length of pants ... or Ben Bernanke's beard. Hallelujah!
But even though the Fed may talk about improvements in the U.S. economy -- despite the weak jobs report for August -- it is doubtful that the central bank will hint that it is getting ready to raise its key short-term rate anytime soon.
That rate has been held near zero since December 2008. According to the federal funds futures (remember when we all used to be obsessed with them?) on the Chicago Mercantile Exchange, investors aren't anticipating the first rate hike until the July 2015 Fed meeting at the earliest.
Brian Battle, director of trading at Performance Trust Capital Partners, said the recent move higher in Treasury yields is more about a return to normalcy than anything else. At 2.6%, yields remain lower than where they started the year.
That's a bit of a disconnect since rates often move much higher at a time when the market is expecting the Fed to put on its rate hiking boots soon. In fact, many experts thought bond yields would climb sharply in 2014. The rationale was that bonds were overvalued and investors would dump them in favor of stocks.
But Battle also points out that U.S. bond yields are still substantially higher than those for other developed nations, most notably Japan, France and Germany.
Much of that is due to the recent strength of the dollar versus the euro and yen.
And he thinks that as long as investors around the globe are flocking to the dollar, that will lead to more buying of U.S. bonds. Since bond yields move in the opposite direction of prices, these bond purchases will keep a lid on how high rates can go ... no matter what the Fed does.
Battle said it's hard to imagine how the 10 Year yield will move much higher than 3% unless the Fed signals it will raise rates sooner than the summer or fall of 2015.
He added that investors often forget that the Fed is still likely to keep reinvesting the proceeds from all the bonds in its portfolio that are maturing. In other words, the Fed is not going to become a seller of bonds yet. It's just not going to buy newly issued ones.
What does this ultimately mean for the market? Bond yields probably aren't going to spike that much higher. That's probably good news for stocks, which have rallied in large part because of historically low rates.
And it may also be good news for consumers too. Mortgage rates are likely to remain relatively affordable.
So even though the bond market (and stock market for that matter) has been a bit antsy lately, you probably shouldn't fear the Fed. Yellen is not pulling away the proverbial punchbowl just yet.
Investors can't seem to get enough of Elon Musk, but the Tesla CEO's announcement failed to generate much excitement on Monday.
Will publish Hyperloop alpha design by Aug 12. Critical feedback for improvements would be much appreciated.
— Elon Musk (@elonmusk) July 15, 2013
Musk has been talking about the hyperloop, an idea for a rapid transportation system, for about a year now, but details have thus far been limited. At the recent D11 MOREHibah Yousuf - Jul 15, 2013 2:59 PM ET
With stocks back in record territory, investors are getting greedy again.
CNNMoney's Fear & Greed Index shot back into Greed mode Thursday for the first time since late May, as the Dow and S&P 500 rallied above their record closing highs from May, and the Nasdaq climbed to its highest level since October 2000.
The return of the bull comes as investors have started feeling more confident about future policy decisions from MOREHibah Yousuf - Jul 11, 2013 2:42 PM ET
Tesla is on a roll.
Shares of the electric car maker rallied to a new high Tuesday, just days before the company is set to report its first profit ever.
Tesla (TSLA) offered up a preview of that report earlier this month, saying sales of its all-electric Model S were exceeding expectations.
The Model S is a full-size, four-door luxury sports sedan. While it was unveiled in 2009, it wasn't available until last MORECatherine Tymkiw - Apr 30, 2013 11:12 AM ET
What a difference a month makes.
Redbox parent Coinstar (CSTR) was being dragged through the mud last month after it issued a much weaker-than-expected outlook for the first quarter.
But guess what? Redbox really came through. Coinstar reported earnings per share that trumped forecasts by a wide margin.
Revenue fell short of forecasts and Coinstar's operating margin declined,but Redbox gained market share and its revenue rose 1% as the company added new MORECatherine Tymkiw - Apr 26, 2013 11:39 AM ET
Safeway's (SWY) stock looks unsafe at any speed today. It's down more than 15% after the company reported quarterly results.
Supermarkets are notoriously challenging businesses. Take Whole Foods (WFM) out of the equation and nearly every grocery store struggles to generate healthy profit margins. Competition is tight within the industry, and then there's Wal-Mart (WMT). The big box retailer wants to eat every supermarket's lunch, dinner and breakfast.
Safeway's sales dipped during the latest quarter MOREMaureen Farrell - Apr 25, 2013 2:38 PM ET
Instead of using its own cash hoard to reward shareholders, Apple plans to go into debt for the first time ever.
Apple CEO Tim Cook said late Tuesday that the company will double the amount it returns to shareholders through share buybacks and dividends by 2015, but will "access the debt market" to pay for it.
Borrowing money seems odd for a company like Apple (AAPL), which has $144 billion in cash. But more than MOREHibah Yousuf - Apr 24, 2013 2:47 PM ET
Bed Bath & Beyond got a boost Thursday after the home goods retailer reported stronger-than-expected revenue.
While earnings were in line with forecasts, investors cheered the sales figures. Net sales rose nearly 25%, while same store sales -- a key metric of consumer spending -- nudged up 2.5%
Shares of Bed Bath & Beyond (BBBY) rallied more than 4% Thursday before pulling back.
Some of the retreat could be due to MORECatherine Tymkiw - Apr 11, 2013 2:32 PM ET
Anyone can reinvent themselves as the saying goes. While Cisco has been doing just that, some think it's gotten a little too ambitious.
FBR Capital Markets analyst Scott Thompson downgraded the stock Thursday to underperform and slashed his price target to $17 from $22.
"We expect it may take longer than management expects to create organic software growth that is able to offset declining core routing and switching revenues," said Thompson in his MORECatherine Tymkiw - Mar 21, 2013 1:49 PM ET
For the first time this year, investors took money off the table.
According to the latest data from the Investment Company Institute, investors pulled $1.13 billion from U.S. stock mutual funds during the week ended Feb. 27. That's the first time investors took money out of stocks this year, and it came just days before the Dow hit a record high.
But that doesn't mean the tide has turned. One week of MORECatherine Tymkiw - Mar 6, 2013 1:05 PM ET
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