The market opened slowly Wednesday as investors speculated about whether Federal Reserve Chairman Janet Yellen will discuss the Fed's 6.5% unemployment benchmark in her press conference scheduled for Wednesday afternoon.
The Fed has said that when the unemployment rate drops to 6.5% it would consider raising interest rates. Investors are wondering whether Yellen will lower or even eliminate this benchmark since the unemployment rate has been hovering close to that number for the past couple months.
"What the Fed is going to do is take out the 6.5% explicit target," a senior trader from California said in an interview.
After falling to 6.6% in January, the employment rate ticked up to 6.7% in February, with adverse weather conditions blamed in part for the increase, suggesting that the percentage may in fact be lower.
"Now that we're there, there is no freaking way they can do what they said they were going to do without injecting more volatility into the market," the trader said.
While the economy has been recovering, many industry experts do not believe it is stable enough for the Fed to raise interest rates at this time. Strategists have predicted that the Fed will start raising interest rates in mid- to late-2015. In a speech last month, Yellen said while the Fed is likely to continue tapering its bond-buying back program, it has no immediate plans to raise interest rates.
"I think they're going to probably change some of the metrics on what they are basing their future rate moves," a trader in New York said. "They've been pegging it on a plummet in job growth, and people have been very focused on those numbers."
Some industry participants have expressed concern about the Fed increasing interest rates sooner than expected because the Federal Open Market Committee has decreased the amount of bonds it purchased to $75 billion in January and $65 billion in February.
"The market seems to be taking tapering in stride," said a trader based in Chicago. "Rising interest rates would be a different situation."
With only two deals greater than $100 million expected in the negotiated market, primary market trading began slowly Wednesday.
The largest deal in the negotiated market comes from the city of Holland, Ottawa and Allegan Counties, Mich., for $160 million of electric utilities system revenue bonds. Jefferies LLC is the lead underwriter. The bonds are rated Aa3 by Moody's and AA by Standard and Poor's.
Westchester County Local Development Corporation will issue a twofold deal totaling $110 million of Pace University revenue bonds. Series 2014A of the deal consists of $80 million of revenue bonds, while series 2014B is comprised of $30 million. The bonds are rated BB-plus by S&P.
There are no deals scheduled for over $100 million in the competitive market Wednesday.
Yields were steady to softer Wednesday morning, according to Municipal Market Data, with bonds maturing from 2017 to 2018 climbing as much as two basis points, while bonds maturing from 2019-2020 jumped as much as one basis point. Bonds maturing on the long-term curve were steady.
Treasuries were steady Wednesday, as the 30-year yield and two-year note were unchanged from Tuesday at 3.62% and 0.36%, respectfully. The 10-year benchmark gained one basis point to 2.69%.
