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The bond market is speaking loud and clear, but is the Fed listening?

Jun 20, 2019

We Crunch the Numbers, You Make the Trade.We Crunch the Numbers, You Make the Trade.
We Crunch the Numbers, You Make the Trade.We Crunch the Numbers, You Make the Trade.

 

  • The bond market is making its demands very clear-cut and cut soon!
  • Fed President Powell made clear yesterday the Fed is ready to cut if necessary
  • Futures markets are already pricing in a 25 bp cut at the next Fed meeting in July-could that happen?
  • For those who watched Chairman Powell answering questions after the decision, he did not seem necessarily to be in a hurry to cut
  • The Fed removed “patient” from its statement describing its policy approach, animating the bond market

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  • But when the Fed met, only 8 members of 17 see a rate cut by the end of 2019
  • The bond market, however, seems to have other ideas, already expecting a cut next month
  • In fact, futures market is pricing in 75bp of cuts by the end of 2019 in the wake of the most recent Fed statement
  • The US Treasury market, at $16 trillion, has a way of getting what it wants and seems clearly to know what it wants: lower rates
  • Fed members, though, are divided, with over half not even expecting a cut in 2019
  • Analysts are also not as convinced as the bond market with rate cut expectations for 2019 varying wildly
  • The Fed hiked rate multiple times in 2018 and has not cut rates in over 10 years
  • Most agree, though, the question on a rate cut is not if, but when
     

 

 

 

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Global Top Stock IdeasTOP LONG & TOP SHORT STOCK IDEAS FOR GLOBAL MARKETSMONTHLY TOP IDEAS FROM OUR MULTI-FACTOR QUANTITATIVE MODELS