Bond Traders Delay Fed Rate Cut Bets as US Inflation Surges
Summary:
Bond traders have pushed back their expectations for the next Federal Reserve (Fed) interest-rate cut to December after US inflation exceeded projections. Treasury debt prices plummeted, driving yields higher. Traders are skeptical of any rate cuts amid inflationary pressures.
Key Points:
* Swap contracts previously anticipated a rate cut by September but have been repriced after January consumer prices rose more than expected.
* The current market pricing suggests only one quarter-point cut this year.
* The benchmark 10-year yield reached session highs of 4.66%, while shorter-maturity yields stabilized.
* Fed policymakers paused at their January meeting after three rate cuts in late 2022.
* Chair Jerome Powell noted progress towards the Fed's 2% inflation goal but emphasized that more work is needed.
* The consumer price index rose 0.5% in January, the highest since August 2023, driven by household expenses such as groceries and gas.
* The core CPI, excluding food and energy, also increased by 0.4%, exceeding forecasts.
* The data highlights the Fed's ongoing challenge in combating inflation, prompting traders to question the probability of rate cuts.
* Two-year Treasury yields surged before retracing slightly.
* President Trump advocates for lower interest rates, while investors anticipate a significant supply of new government debt.
* Portfolio managers favor holding government debt of countries like Australia and New Zealand over US Treasuries due to heightened uncertainty.