Treasury rout is doing Feds’ job
2023-10-06
Summary:
Rising Treasury yields add to market pressure as borrowing costs hit decade-high, raising concerns about economic slowdown.
A surge in Treasury yields is threatening to put more pressures on financial markets. Borrowing costs staying at their highs in more than a decade add to concerns about slowing economy.
Investors are now more convinced that the Fed has finished raising interest rates despite still hawkish comments from some policymakers. The central bank signalled one more hike by year-end at Sep’s meeting.
Futures markets point to roughly 30% of a quarter-point increase by December, sharply down from 50% two weeks ago. However, expectations for rate cuts are lowered to roughly three quarter-point reductions.
Cleveland Fed President Loretta Mester said this week that the move in Treasury yields was ‘certainly going to feed into’ decisions about whether another rate rise is necessary this year.
Futures traders have record sums riding on the outcome of the Fed’s November policy meeting. The recent increases in open interest appear to reflect bets that would benefit from tightening in Nov.
Gold prices will likely recover next year once the Fed start to cut interest rates. The precious metal has erased over $200 since it peaked in May.
Gold is moving sideways after recent rout while the 50 EMA continues to cap its potential rally. The NFP report due later will be central to confirmation of its direction.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
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