Bond investors catch up with the Fed's plans
Bond investors catch up with the Fed's plans
The bond market is beginning to believe in the Federal Reserve.
The unemployment rate in the United States fell to 3.7%, its lowest level since 1969, the Labor Department reported Friday. Meanwhile, the average hourly earnings increased by 0.3% seasonally adjusted compared to August, the third consecutive month of solid gains that exceeded inflation.
The news pushed the performance in the 10-year Treasury note, which had already risen to a multi-year high earlier this week with solid economic data. Yields increase as bond prices fall.
The 10-year yield, which includes expectations of interest rates, inflation, economic growth and other factors, rose to 3,227% from 3,196% on Thursday. A week ago, on September 28, the performance was 3,062%.
Market movements indicate that many investors are probably restoring their expectations to the path of Fed rate increases in light of the rising economic outlook.
"In the wake of a financial crisis, the market has seen more downside risks over time than upside risks," said Matthew Hornbach, global head of interest rate strategy at Morgan Stanley. "I think the data we have had in the last two months has led investors to reassess their vision in the medium and long term."
Fed officials raised their short-term benchmark rate last week and planned four more quarter-percentage point increases until the end of 2019. That would raise the rate to a range between 3% and 3.25%. Until recently, many investors doubted that the Federal Reserve would go so far.
Last Friday, September 28, futures contracts suggested that investors believed it was unlikely that the Fed would raise rates more than twice as much until October 2019, according to the CME Group. After the September jobs report was published, the probability of at least three rate increases for next October was 59.3%.
The Fed is raising rates to prevent the economy from overheating, which could generate too high inflation or generate dangerous asset bubbles.
Some economists worry that the restricted labor market will accelerate wage growth, which companies could pass on to consumers in the form of higher prices. If inflation shows signs of going well above the Federal Reserve's 2% target, the central bank would raise interest rates faster than it plans, which could stifle the economy.
Fed Chairman Jerome Powell said in a speech on Tuesday: this risk was unlikely to materialize. Inflation shows little sign of rebounding, he said, while expectations of price increases are well anchored.
He said a recent recovery in wages and compensation has occurred "in a way that is very welcome."
"The increase in wages is generally consistent with the observed rates of price inflation and the growth of labor productivity and, therefore, does not point to an overheated labor market," Powell said. "In addition, higher wage growth alone does not have to be inflationary."
Speaking on Friday on Bloomberg TV, New York Fed President John Williams echoed Powell's sentiment and said the recent increase in bond yields does not seem to suggest inflation fears among market participants. Rather, he said, they reflect an increasingly favorable view of the economic outlook.
As for the fall in the unemployment rate last month, Mr. Williams said: "It does not scare me at all, it's great for the American people."
-Paul Kiernan
Write to Paul Kiernan in paul.kiernan@wsj.com
.
.
SOURCE LINK ERESVIRAL.COM https://www.beviral.online
Comentarios
Publicar un comentario