U.S. bond traders had a very clear message for Christine Lagarde on Friday morning: Your advice to the Federal Reserve is wrong.
Lagarde, managing director of the International Monetary Fund, advised the Fed on Thursday to wait until 2016 before hiking interest rates.
Bond traders don’t think the U.S. central bank will heed that recommendation. On Friday, they quickly pulled forward their expectations for a rate increase -- assigning better than even odds of a move in September after a jobs report showed American payrolls climbed the most in May in five months. That’s up from a 46 percent probability on Thursday, according to Bloomberg calculations.
As John Silvia, chief economist at Wells Fargo & Co. wrote in a note Friday morning, “Even if the Fed does not move credit markets already have moved.”
Bond traders dumped Treasuries Friday, sending yields on 10-year notes to the highest since October.
On Friday, Olivier Blanchard, the IMF’s chief economist, downplayed Lagarde’s comments the day before, saying, “the press probably overplayed it a bit.”
The IMF has regularly made similar economic recommendations, and perhaps the big surprise is that they tried to advise the U.S., he said at a conference in New York.
“We may turn out to be wrong. We may turn out to be right,” he said. “But that’s the kind of discussion that we have.”
For now, while Lagarde may have raised some eyebrows on Wall Street Thursday by saying the Fed shouldn’t move this year, traders aren’t listening any more. After all, there’s data to examine.