The Bond Market Is Taking Advantage Of Janet Yellen`s Dovishness

Push the Limits

It has been a common theme in financial markets to push the limits on any possible edge, so if there are restrictions on banks and financial institutions use of leverage, lobby for change, or if activity falls under a certain governmental regulation, alter the activity so that it is classified under a different interpretation so that previous limits can be exceeded. 

Talk Up the Dollar ‘Treasury Speak’

It is so common for Wall Street to front run any legislative, Federal Reserve or Treasury policy agenda that policymakers have in the past always been mindful to at least talk the market out of being so blatantly one-sided that they get way offside on the trade. Think for example about the many Treasury officials who talked up the dollar saying publicly that they want a strong dollar when the markets knew that in reality the Treasury was by practice weakening the currency, and wanted to devalue the currency. But by talking up the currency Treasury officials didn`t signal a white flag, and have everybody and their mother shorting the US Dollar, as when trades are that one-sided complications arise when everybody needs to get out on a short squeeze, plus a collapse of the dollar would be highly problematic, so they needed at least a modicum of restraint by markets.

Helicopter Ben Era versus Janet Yellen Dove among Doves Era

However, with Ben Bernanke he was known as ‘Helicopter Ben’ for his dovishness, that if things got bad in the economy, he would literally throw money out of Helicopters at the economy to keep it from sliding too far into recession territory and a downward spiral. I am paraphrasing with considerable leeway here, but you get the gist.

But even Bernanke would have balanced remarks, almost academic in nature to show that he played Devil`s advocate on the pluses and minuses of fed policy initiatives. However, Janet Yellen has taken dovishnessto an all-time high or low depending upon your perspective, there is no pretense of academic balance in her stance on monetary policy, and markets have not only picked up on this, but they are taking advantage of her dovishness to get way off sides on trades and financial markets.