The equity market had a decent week and is kicking off Monday in similar fashion. Bonds had a weekly down (high above previous week, settled lower on week) but are impressive only in their somnambulist behavior.
The prevailing (bearish) wisdom has been the duration buying is signaling impending equity market weakness and/or geopolitical risk. We've never agreed. The portfolio re-balancing out of momentum and back toward bogey has been our focus. The relatively stable low rate structure is buttressing, not impeding the expansion. (Its hard to call it a recovery anymore) We expect the rest of Summer to be more interesting.
As the Fed now admits, its ability to exit the market is limited. Their focus is now on what shape they will remain the system's biggest, clumsiest player. The shape is the RRF (Death Star), and recognizing its insignificance, now Term Deposit Facilities (TDF). We had been hoping for change that would return to a market participant rates regime. This no longer seems possible. The Fed is the market and the only critical mass counter-party. Yellen will have to escape the bounds of simple economics and accurately calibrate both the quantity and the price of money in the biggest economy in the world. The pundits mis-diagnosed this easier phase badly. I anticipate some great explanations later when things get more complicated.