Salient to Investors:

Unemployment at 7.5 percent, estimates for the narrowest budget deficit since 2008, and a 1.1 percent inflation rate are keeping yields and volatility contained despite disunity among Fed officials over when to curtail QE.

Gary Droscoski at GAM USA expects the sideways move to continue for the next couple of months with less volatility, and does not buy into recent talk about re-pricing in the bond market.

The median strategist expects 10-year yields of 2.15 percent at year-end, and TIPS to anticipate an average increase of 2.26 percent in consumer prices for the next decade, versus 2.64 percent estimated in September.

The 21 primary dealers that trade securities directly with the Fed forecast last month that the central bank’s quantitative easing program will end in the second quarter of 2014, with the majority predicting the first rate increase in 2015.

Thomas Graff at Brown Advisory said many are itching to play a QE exit story to their detriment – the Fed is much more methodical and deliberate than traders give them credit for.

Overseas investors owned 50.5 percent of the $11.4 trillion US debt outstanding in March.

Joe Ramos at Lazard Asset Mgmt said Bernanke looks powerful now but that’s because global investors believe his forecast and the whole world has been betting with him, and forecasts the 10-year yield to gradually move to 3 percent after the Fed begins to scale back debt purchases.

Personal income as a percentage of output is 43.8 percent, the smallest since at least 1947.

Ira Jersey at Credit Suisse said very soft inflation expectations and actual inflation is not an indication you need to be very fast in reducing accommodation.

Francis Yared at Deutsche Bank said policy makers seem to be doing everything now to reduce the significance of tapering to make sure the market won’t run away from them in terms of pricing the next policy steps. Yared forecasts the 10-year yield will end 2013 at 2.25 percent and said the Fed should be able to taper without causing major disruptions in the Treasury market.

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