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The UST 10YR Yield is getting smoked after Fed Chair Janet Yellen takes a toke of the dovish peace pipe, keeping the “patient” word in, and acknowledging what she cannot reverse (#Deflation in all reported inflation metrics). In other words, her acknowledging deflation (without actually calling it that) is what kept "patient" in the vernacular.

Yellen Puffs Dovish Peace Pipe, Bond Yields Fall - Yellen cartoon 08.18.2014

The UST 10YR is at 1.96% this morning and is down -14 basis points lower than just 24 hours ago with slowing CPI and GDP reports (Thursday and Friday) up next.

On a related note, the USD evidently did not like the dovishness either, but the selloff here is modest compared to bond yields. The USD is only -0.2% vs. Burning Euros and Yens. That should put a short-term bottom in for Oil, Gold, etc. And that also helps keep the S&P 500 at all-time highs (both rate sensitive and inflation expectation stocks stop going down).

For the record, Yellen is as dovish, on the margin, as I thought she could be.

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This is an excerpt from Hedgeye morning research by CEO Keith McCullough. Click here for more information on how you can become a subscriber today.