Bloomberg News reports that investors have rushed to price in aggressive rate hikes by the Federal Reserve on Monday following the shock due to US inflation to upend bets related to peak price pressures, causing the Treasury yields to surge and strengthen the dollar.
What’s more?
With a hike in 50 basis points seen in the central bank policy decision on Wednesday, participants in the markets are waiting for the updated projections for the US economy, interest rates, and inflation. Traders are seeing a 50-50 odd of the rates being raised by the Federal Reserve by 3-quarters of a percentage point in July, whereas Barclays Plc has become the first major bank to have predicted a move like this that could come this week.
The two-year Treasury yields surge to a 15-year high at 3.19%, and the 10-year equivalent was found to add as much as four basis points to 3.20%. Data on Friday indicates that the US consumer prices in May surpassed even the highest economic anticipation in a Bloomberg survey.
According to Winson Phoon, expectations related to peak inflation were building up into the inflation release last Friday, and the fact that there was no easing of price pressures further accelerated has rejigged the market position. Winson Phoon is Maybank Securities’s head of fixed income research in Singapore. A 75 hike in basis point at the FOMC meeting in the present week cannot be ruled out as the urgent need to bring the price pressures under control which has likely enhanced, and an unusual scenario might need extraordinary measures.
Bloomberg News reports that the deepening sell-off in Treasuries reverberates through the Asian markets, with the 10-year yield breaching the 0.25% ceiling of Japan that the nation’s central bank tolerates. Similar tenor yields were found to surge in New Zealand above 4% for the first time since 2014.
The Treasuries have been found to send a grim message to the Fed that its measures for catching up with inflation will enhance the prospects of a hard landing for the US economy. This signal is coming from gaps shrinking between 5 and 30-year yields.
This week all eyes will be on Chair Jerome Powell’s press conference post the meeting and the Fed’s statement, when the characterization of inflation of the policy marker and long-term predictions for the fed fund targets, the famous dot plot will be crucial.
While pushing back against 75 basis point surge at May’s meeting following his St Louis Fed colleague James Bullard stated that might be considering, there has been nothing that has been taken off the table permanently, and stress has been laid for the policy to be agile, reports Bloomberg News.
