Treasury Futures Rise as Fed’s Fischer Warns on Global Growth

Treasury note futures rose as comments from Federal Reserve Vice Chairman Stanley Fischer fueled speculation the central bank may push back the timing for raising interest rates.

Money-market derivatives signal that the central bank won’t increase its almost-zero policy rate target until the fourth quarter of 2015. While the Fed is set to end its bond-buying this month, the prospect of monetary tightening has been tempered by concern regarding flagging global economic growth.

“Most of the trade overnight has been driven by three-factors, a pretty dour round of International Monetary Fund meetings in Washington this weekend, accented we think by Fed Vice Chair Stanley Fischer’s comments Saturday afternoon,” said John Brady, managing director for global futures and options at RJ O’Brien & Associates LLC in Chicago. “Considering Tokyo was closed last night, overnight volumes in Treasury futures was quite heavy.”

The lead 10-year Treasury note futures traded at the CME Group Inc. rose to its highest in almost 11 months. The benchmark contract expiring in December gained 26/32, or $8.13 per $1,000 face amount, to 127 11/32 at 4:50 p.m. New York time. Traded volume reached 510,982 contracts, versus average daily turnover this year of 964,000 contracts.

Market Hours

The Securities Industry and Financial Markets Association recommended no trading in cash Treasuries today due to holidays in the U.S. and Japan. The cash 10-year yield fell 15 basis points last week to 2.28 percent, capping a fourth week of declines, the longest run since January.

Traders see a 46 percent chance the Fed will raise its benchmark rate by its September 2015 meeting, fed funds futures data compiled by Bloomberg showed. That’s down from 55 percent chance as of Oct. 10.

For an increase in October 2015, the probability is 57 percent, and that corresponds to the first policy meeting in 2015 where traders are pricing in above-50-percent chance of a hike. Three months ago, there was a 53 percent probability of a target rate increase coming in July.

The target rate has been maintained in a range of zero to 0.25 percent since 2008 to support the economy.

Fischer View

“If foreign growth is weaker than anticipated, the consequences for the U.S. economy could lead the Fed to remove accommodation more slowly than otherwise,” Fischer said in an Oct. 11 speech at the IMF’s annual meetings in Washington.

Chicago Fed President Charles Evans is due to discuss current economic conditions and monetary policy in Indianapolis today.

The implied yield on the Eurodollar future contract expiring in December 2015 fell seven basis points to 0.825 percent from 0.895 percent on Oct. 10. The rate was 1.065 percent a month ago.

Minutes of the Fed’s September meeting released Oct. 8 showed authorities highlighted concern that deteriorating growth abroad and a stronger dollar may hurt the domestic economy by curbing exports and damping inflation.

Futures contracts also advanced overnight after People’s Bank of China Governor Zhou Xiaochuan reiterated the need for “prudent” monetary policy. A report today showed China’s trade surplus narrowed last month as imports unexpectedly climbed and exports rose more than analysts forecast.

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