Bonds Starting to Cause Concern for U.S. Stocks
The bond market is starting to give the stock market agita, and focus could remain on interest rates Wednesday as traders try to handicap the Fed’s next move.
A report from the San Francisco Fed staff, released Monday, injected an air of nervous into the Treasury market. The study said investors’ expectations for rate hikes lag those of the Fed.
On top of that, the Treasury market has been full of talk that the Fed could tweak the language in its statement, removing a key phrase that has reassured markets it would hold rates lower for a long time to come.
The removal of the phrase that it expects to keep rates low for a “considerable” time is increasingly a topic of discussion in the market, particularly after comments from several Fed officials last week. While strategists don’t agree on whether the central bank will change the language this month, or at a later meeting, they do agree the Fed has the potential to create confusion and volatility.
“By taking it out, you open up to a greater extent the probability of an earlier hike … and that’s the key,” said Adrian Miller, fixed income strategist at GMP Securities.
The Fed is expected to wind down its quantitative easing program in the fall, announcing the final tapering of its bond buying in October. That has left the market guessing when it would move toward normalizing rates, and the first rate hike is widely expected in the middle of next year.
Source: CNBC
