Labor market softening. Why taper at all?

|By:, SA News Editor

Tapril? Banks quickly ratchet back their expectations for the taper initiation with the previously aggressive Barclays now not expecting it to start until March. Goldman is in agreement. On top of weakish economic data are the distortions caused by the government shutdown - meaning no "clean" numbers until at least December.

"Why bother taper at all," asks Deutsche's U.S. rate strategist Dominic Konstam. The labor market is exhibiting "late cycle" tendencies and has only a 50/50 chance of persisting much beyond 2015, he says. This gives the Fed just a "narrow window" to taper before another economic slowdown hits. Given the taper delay and possible permanent postponement, he thinks 2.25% is a reasonable target for the 10-year Treasury (which this morning has dropped to 2.5%).

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