Tags: rate | bond | Fed | guidance

Some Bond Market Participants Push Up Expectations for Rate Hike

By    |   Monday, 13 January 2014 07:19 AM

When the Federal Reserve announced last month that it would begin tapering its bond purchases, it also said it likely wouldn't raise short-term interest rates until "well past the time that the unemployment rate declines below 6 1/2 percent."

That led many experts to predict that rates won't be lifted until 2016. But now some bond market participants appear to have shifted their views.

Federal funds futures contracts currently predict a 65 percent chance of an April 2015 beginning to rate hikes, according to CME Group’s FedWatch.

Editor’s Note:
Secret ‘250% Calendar’ Exposed — Free Video

And some experts say strong economic data in coming weeks could continue to push forward expectations of a rate hike.

"What we are going to see here in the upcoming couple of months is this whole notion of forward guidance being tested," Gregory Whiteley, government bond portfolio manager at DoubleLine Capital, tells MarketWatch.

Forward guidance refers to the Fed's signals that it won't raise rates soon.

"As soon as the economic outlook becomes a bit more optimistic, right away people question whether the Fed is going hold the line on this low short-rate posture," Whiteley notes.

Not everyone is accelerating their expectations for a rate hike. Bill Gross, co-chief investment officer at Pimco, says in his January Investment Outlook that it will happen in 2016 at the earliest.

If that's correct, "one- to five-year bonds, combined with credit, volatility, curve rolldown and a dollop of currency, should float a bond investor’s boat in 2014," he writes.

Editor’s Note: Secret ‘250% Calendar’ Exposed — Free Video

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When the Federal Reserve announced last month that it would begin tapering its bond purchases, it also said it likely wouldn't raise short-term interest rates until "well past the time that the unemployment rate declines below 6 1/2 percent."
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2014-19-13
Monday, 13 January 2014 07:19 AM
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