Pimco Joins Bond Traders Seeing Fast-Tracked Fed After Trump
Investors from Pacific Investment Management Co. to TIAA Global Asset Management see the surge in long-term U.S. Treasury yields that came after Trump’s election as a sign inflation will be on the rise. That means the long-dormant part of the Fed’s dual mandate could force policy makers to act more swiftly to raise borrowing costs than they have in 2016, when they held off time and time again after increasing their target rate to a range of 0.25 percent to 0.5 percent at the end of last year. Scott Mather at Pimco says the central bank may boost its benchmark three times by the end of 2017.
If Trump rolls out high levels of fiscal stimulus, “the Fed may then be forced to react to that at a faster pace as it gets to or slightly exceeds its 2 percent inflation target,” said New York-based Joe Higgins, manager of fixed-income strategy and the TIAA-CREF Bond Fund at TIAA Global Asset Management, which manages $915 billion in assets. “It’s not inconceivable that the pace of Fed increases is at a faster pace than it otherwise would.”
The market-implied chance of a December rate hike by the Fed is 84 percent, compared with 76 percent at the end of last week, according to fed fund futures data compiled by Bloomberg. The odds briefly plunged below 50 percent as election results came in Tuesday night, based on U.S. overnight indexed swaps that trade 24 hours a day. Those usually have a slightly lower probability than the calculations based on futures.
Treasury 10-year yields rose five basis points, or 0.05 percentage point, to 2.1 percent as of 9:10 a.m. in New York, after surging 20 basis points Wednesday, according to Bloomberg Bond Trader data. U.S. 30-year yields climbed to 2.9 percent, after jumping 23 basis points to 2.85 percent the previous day.
Oil prices fall on persistent fuel supply overhang
Oil prices fell in early trading on Friday, as the market refocused on a persistent fuel supply overhang that is not expected to abate unless OPEC and other producers make a significant cut to their output.
International Brent crude oil futures LCOc1 were trading at $45.74 per barrel at 0445 GMT, down 10 cents, or 0.2 percent, from their last close.
U.S. West Texas Intermediate (WTI) crude oil futures CLc1 were trading at $44.51 per barrel, down 15 cents, or 0.3 percent, from their last settlement, with a stronger dollar also weighing on prices.
Reference: Reuters, Bloomberg
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