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Some Wall Street banks say they’re overdoing bets on rate hikes, so buy bonds

Some Wall Street banks believe that bond market traders may have gone too far into enthusiastic speculation about the pace of future Fed rate hikes.

Investors raise US government debt yields and raise bond prices in hopes that accelerated recovery from pandemics could accelerate the Fed’s exit from easing policies faster than central bank cues We have been pushing for a reduction.

But Barclays analysts
Bhabha Atomic Energy Research Center
+ 0.86%

And TD Securities

Traders piled up on rate hike bets say they may have crossed their skis.

“In the light of the Fed’s new, hiking cycle market prices are too aggressive
“Framework” was written by a strategist at Barclays on Monday. “The road to full employment is still long and inflation is unlikely to stay at price levels for the long term.”

TD Securities strategists expect a rate hike in September 2024, and the Fed will begin strengthening its monetary easing stance by curtailing its $ 120 billion monthly asset purchase program before considering a rate hike. There is a possibility. ..

Their vigilance is coming despite stronger than expected employment reports showing the U.S. economy Added an additional 916,000 jobs in March..

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Skeptical analysts on the bearish bond market trade said last month’s improvement in job numbers emphasized an accelerated recovery, but that alone is unlikely to change the Fed’s dovish policy stance.

As the central bank sets two key requirements: full employment and sustained inflation above 2%, the criteria for accelerating rate hike schedules remain high.

To take advantage of the fast-paced pricing of the market, Barclays recommended investors to soar their Treasury securities for five years.
It is considered the most sensitive maturity to the expectations of rate hikes over the next few years.

Five-year bonds traded at 0.86% on Tuesday after rising to a 13-month high of 0.98% on Monday. At the beginning of the year, the mid-term maturity was close to 0.36%. Bond prices are inversely proportional to yield.

10-year government bond

It also fell from a recent high and traded at 1.66% on the final check.

read: “Investors still misunderstand the Fed,” said the chief investment strategist.

Market participants now expect an average point rate increase of a quarter from the current 0% to 0.25% range by the end of 2023, with only one such increase by the end of next year. I am.

The positive expectations of the market were in contrast to the central bank’s own withdrawn schedule.

Interest rate forecasts from Fed officials tracked through so-called “dot plots” show that most staff still expect central bank benchmark federal funds rates to remain stable until 2023.

Relation: Powell said the Fed will “gradually” reduce its bond market footprint. Some people are thinking this year.

Some Wall Street banks say they’re overdoing bets on rate hikes, so buy bonds Some Wall Street banks say they’re overdoing bets on rate hikes, so buy bonds

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