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Wall Street financial conditions ease sharply after Fed remarks
Since July 29, the S&P 500 has risen nearly 7%, the VIX has fallen six points to year lows, and junk-bond borrowing costs have dropped, even as the 10-year Treasury yield has edged higher.
Markets have reversed sharply on expectations around Fed Chairman Kevin Warsh, with a gauge of US financial conditions jumping to its easiest level since 1996, according to an analysis published by Yahoo Finance. The report notes that Wall Street measures financial conditions through signals such as stock performance, market volatility, and corporate borrowing costs, which can either reinforce or undermine what the Fed is trying to accomplish. Between Warsh’s first Fed meeting on June 17 and the next on July 29, Treasury yields rose, stocks slipped, volatility increased, and corporate borrowing became more expensive, even though the Fed left its benchmark rate unchanged at 3.5% to 3.75%. Since July 29, that pattern has flipped: the S&P 500 has jumped nearly 7%, the VIX dropped six points to the lows of the year, and junk-bond borrowing costs have fallen, while the 10-year Treasury yield has actually risen rather than collapsing.
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