Interest Rate commentary: Federal Reserve in disagreement with Bond players - swisspartners – The art of finance
Federal Reserve in disagreement with Bond players
“…2 lovely black eyes, only for telling a man he was wrong… 2 lovely black eyes.”, Three men in a boat
In the bond market, there is a slight dis-agreement amongst the Federal Reserve and scholarly members of bond market on one important matter. Whilst bond investors are in steadfast agreement that rates will rise in 2018 and 2019 (as outlined in the Fed’s dot plot chart) the often savvy members of the bond market do not believe that the rates will rise to the same high levels.
Such disparity of beliefs is not a bad thing in any market, however, major bond investors have also backed their tepid views on rates with hard cash in the futures market. A lot will of course depend on the pace and size of US Corporate tax cuts, so it remains to be seen whether the major bond players will end up in the winner’s enclosure, or suffer the double indignity of being wrong and losing money.
At the moment, our best guess is that US rates will rise during 2018. However only on 2 occasions, not on the 3 to 4 hikes that some investors are expecting. Our rational for this view is partly rooted in the belief that a sudden series of rate hikes would unsettle homeowners and borrowers at a time when Q/E may also start to decline.
On a brighter note, after a well-received tenure at the Federal Reserve, Janet Yellen is scheduled to pass the reins of power over to her successor, Mr Jerome Powell. Thankfully for investors everywhere, the new leader comes with some considerable experience and has been a member of the Federal Reserve Board of Governors since 2012. Moreover, he is known to be reasonably dovish on rates policy and the market is hoping that he will continue, like Yellen, to be flexible. Especially, if the economy pauses for breath.
Closer to home, there are some indications from leading commentators that the Swiss National Bank (SNB) may decide not to raise interest rates until some point in 2019. This would make sense as the mere hint of a rise may cause the Swiss Franc to appreciate – especially if there is also uncertainty within the Global financial arena. At the moment some Swiss Export orientated equity stocks are clearly benefiting from a slight depreciation in recent months of their home currency against the Euro.
Federal Reserve in disagreement with Bond players
“…2 lovely black eyes, only for telling a man he was wrong… 2 lovely black eyes.”, Three men in a boat
In the bond market, there is a slight dis-agreement amongst the Federal Reserve and scholarly members of bond market on one important matter. Whilst bond investors are in steadfast agreement that rates will rise in 2018 and 2019 (as outlined in the Fed’s dot plot chart) the often savvy members of the bond market do not believe that the rates will rise to the same high levels.
Such disparity of beliefs is not a bad thing in any market, however, major bond investors have also backed their tepid views on rates with hard cash in the futures market. A lot will of course depend on the pace and size of US Corporate tax cuts, so it remains to be seen whether the major bond players will end up in the winner’s enclosure, or suffer the double indignity of being wrong and losing money.
At the moment, our best guess is that US rates will rise during 2018. However only on 2 occasions, not on the 3 to 4 hikes that some investors are expecting. Our rational for this view is partly rooted in the belief that a sudden series of rate hikes would unsettle homeowners and borrowers at a time when Q/E may also start to decline.
On a brighter note, after a well-received tenure at the Federal Reserve, Janet Yellen is scheduled to pass the reins of power over to her successor, Mr Jerome Powell. Thankfully for investors everywhere, the new leader comes with some considerable experience and has been a member of the Federal Reserve Board of Governors since 2012. Moreover, he is known to be reasonably dovish on rates policy and the market is hoping that he will continue, like Yellen, to be flexible. Especially, if the economy pauses for breath.
Closer to home, there are some indications from leading commentators that the Swiss National Bank (SNB) may decide not to raise interest rates until some point in 2019. This would make sense as the mere hint of a rise may cause the Swiss Franc to appreciate – especially if there is also uncertainty within the Global financial arena. At the moment some Swiss Export orientated equity stocks are clearly benefiting from a slight depreciation in recent months of their home currency against the Euro.