Fed's Focus on Inflation Keeps Attention on Short-End Treasurys

Dow Jones13:08

0508 GMT - Federal Reserve Chairman Kevin Warsh's comments at Jackson Hole reinforced the Fed's commitment to the 2% PCE inflation target, and the market responded by assigning a higher probability to rate hikes down the road, Madison Investments' Mike Sanders says in a note. "Warsh appears focused on using the Fed funds rate as the primary policy tool, keeping the Fed focused on the front end of the yield curve while the Treasury deals with other parts of the curve," the head of fixed income says. If the Fed is going to raise rates sometime in the next three to six months, that is already reflected to some degree in the five- to seven-year part of the curve, where real yields remain attractive, Sanders says. The PCE indicator is the Fed's preferred gauge of inflation.

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