Tuesday, September 26

Bonds fear a surprise rate hike in January

bond crash Given the possibility that there is a negative surprise from the Federal Reserve of the United States at next week’s meeting.

There is talk that the Fed could raise interest rates by surprise in January (four rises are planned this year, although some analysis houses speak of eight) or definitively cancel the tapering in January.

Specifically, Treasuries fell throughout the day on Tuesday, with two-year yields soaring above 1 percent for the first time since 2020.

The Treasury yield rose nine basis points to 1.06 percent when operations resumed after Monday’s holiday. The 10-year Treasury yields rose as much as seven basis points to 1.85 percent, the highest since January 2020. To date, in the last three weeks, they are up almost 35 basis points.

Investors worried about inflation

Investors are increasingly concerned that high inflation in the US will force the Fed to tighten policy faster than expected. The swaps provide for four increases of 25 basis points in one year.

However, billionaire Bill Ackman has advocated a 50 basis point move in March, while Fed Governors Christopher Waller said there could be up to five hikes this year, depending on inflation.

“All of this reflects that bond markets are catching up to the reality of inflation, that central banks are behind the curve and are now struggling to get ahead of it,” said Stephen Miller, investment consultant at GSFM, a unit of CI Financial Corp of Canada.

A horrible year for the bond market

The bonds have had a horrible start to the year, as the increase in aggressive comments from the Fed made it clear that the central bank will act aggressively to control rising inflation.

Officials have also discussed trimming the balance sheet and said they don’t expect the omicron virus to affect their plans.

Short-term yields are rising faster than those on longer-dated notes, flattening the Treasury’s yield curve. The Gap between 2-year and 10-year yields is headed for its first close below 80 basis points this yearThe.

Benchmark 10-year Treasury yields are expected to end the year at 2.13 percent, according to economists surveyed by Bloomberg.

On the other hand, “higher interest rates in the United States through precisely expectations of a more aggressive Federal Reserve, coupled with higher inflation expectations, are supporting the dollar,” said Imre Speizer, strategist Westpac Banking Corp.

Rebound in debt interest also in Europe

The pressure on prices also causes a rise in debt interest also in Europe, and therefore fall of the bonds. The German Bund, a reference in the Old Continent, is trading around -0.0135 percent, after having started an upward path for seven days, one step away from trading positive, and approaching levels not seen since May of 2019.

The Spanish bond yield remains unchanged, but at 0.665 percent, close to the highs of May 2020, when it stood at 0.668 percent.

The return on the ten-year Spanish bond was negative a little over a year ago, since in mid-December 2020 the interest of the reference to a decade was -0.016%.

Meanwhile, the ten-year Italian bond also remains on the rise, since it is trading at 1.379 percent, after registering a rise of 0.86 percent at this market start, while the Portuguese ten-year bond also registers increases around 0.589 percent.