What Will The Fed Have In Store For Bond Traders?
Today’s Spotlight Market
Bond futures are higher for the second consecutive session, as there is a growing expectation that the Federal Reserve will hold steady and not raise interest rates until December. The US central bank begins a 2-day meeting today, with the policy statement and interest rate decision coming tomorrow afternoon. The FOMC is expected to leave rates unchanged, and the consensus opinion seems to be leaning toward a very dovish statement from the Committee.
Fundamentals
Lower energy costs, along with anemic manufacturing activity in China, has drastically reduced global inflation risk. For this reason, we will likely continue seeing central banks either pause or take aggressive action to stimulate growth. This could be seen as favorable for Bond prices, as expected yields decrease. Bond prices did take a hit in recent weeks, as it appeared that traders were looking to take on a bit more risk. Energy and equity prices seemed to be on the rise, however, it looks as though Crude Oil prices have stalled out a bit over recent sessions. The ECB surprised last week by being more aggressive in its policy than previously expected. The ECB lowered its deposit rate to -0.4% and included corporate debt to its asset purchase program. Traders are still split on the direction for the Federal Reserve. Some are not expecting a rate increase until the very end of the year, or none at all, while other traders are expecting several increases in the second half of the year. Bonds will likely have more upside potential if more traders start believing the Fed will hold off this year..
Technical Notes? -? View Today’s Chart
Turning to the chart, we see the June Bond contract closing in on support around the 160-00 level after confirming a double-top in February. The contract closed below the 50-day moving average the past 2 sessions, which could be seen as negative for prices in the near-term. The RSI indicator is showing oversold conditions, which could be favorable for Bonds in the near-term.
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