Operators discount a 100% probability of another hike the interest rate of a quarter of a point by the Federal Reserve within the next two meetings of monetary policy and more than one probability in two for the increase to take place next month.
The change occurred at the time they were rising treasury rates from United States. The two-year rate sensitive to monetary policyrecorded a rise close to 15 basis points, to stand at 4.5%. This is the highest level since early March, when US bank failures rocked markets and led investors to take refuge in public debt.
returns have risen for 10 consecutive sessions and the latest episode was fueled by growing optimism about a possible deal on the debt ceiling and economic data solid than could pave the way for additional tightening from the Federal Reserve.
The United States takes special measures to avoid defaulting on its debt
The rate of the swap contracts linked to the meeting July rose to 5.37% on Thursday, more than 25 basis points above the current federal funds rate, before returning to 5.31%.
The Fed tends to move in multiples of 25 basis pointswhich indicates that the market considers that this decision will take place in July or at the next meeting in June of the Federal Open Market Committee. The June contract discounted about 14 basis pointswhich suggests that the chances of the rise occurring at that meeting are more than 50%.
In the first week of May, when the central bank raised rates for the tenth time in a row, the market was almost completely confident that there would be no further hikes this year and that the Federal Reserve would lower rates up to three times between now and the end of the year.
The Federal Reserve raised interest rates again by 25 points
that opinion, which was based on the recession risk posed by a series of bankruptcies of regional banks and the indications of some officials, has been overcome by concerns about persistently high inflation at world level and conditions labor market adjustments that prevailed at the beginning of the year.
The threat of contagion in the system banking has declined, and the conflict over the ceiling of the debt has not yet triggered the demand for safe haven that could lower the forecast rates.
According to Dominic Konstam, head of macroeconomic strategy at Mizuho Securities“the market has been anxious for incorporating a pause and then a snip, not necessarily as a modal outcome, but more because of the risk that something suddenly breaks and forces the Fed to back off sharply” later this year. “So any sign that nothing is breaking obviously makes it easy to lower the forecast for that risk.”
financial stress
Fed officials have communicated in recent speeches who are trying to balance the forces of still high inflation and a resilient labor sector with signs that the central bank’s 10 rate hikes, totaling 5 percentage points in the last 14 months, they are beginning to cause financial stress that warrants a pause in June.
“The Federal Reserve will feel no need to take cuts and it is unlikely that you will give up the possibility of need more uploadsKonstam said, though he leans towards the view that “for now they are still inclined, in my opinion, to wait and see”, and to “pause in June instead of going through like a steamroller”.
It is estimated that there is an 80% probability that the Fed will raise interest rates
Longer-term swap contracts continue to suggest that the Federal Reserve it will have to cut rates again over the next year, but the scope of the planned easing is considerably less than it was. The December meeting swap stands at around 4.92%compared to 4.20% at the beginning of the month.
Another fixed income market indicator that short-term rate cuts are easing is a further inversion of the rate curve. The two-year rate is now around 0.7% above the 10-year rateand this measure has flattened from 0.4% at the beginning of the month.
SE / ED
You may also like