March Fed Hike in Play for Bond Traders After Inflation Blowout
- Fed fund futures imply more than 40% odds of hike next month
- Two-year yields reach highest since December after CPI data
Barclays' Hobbs Sees Market Warming to March Fed Hike
A March interest-rate increase by the Federal Reserve, an unlikely scenario just days ago, is now suddenly on the table after an unexpectedly strong inflation print and hawkish testimony from Fed Chair Janet Yellen to Congress.
Traders’ expectations for a hike next month jumped after consumer prices rose the most in January since 2013. Derivatives traders are pricing in a 42 percent probability that the Fed raises rates at its March 14-15 meeting, up from 24 percent on Feb. 6. That’s based on the assumption that the effective fed funds rate will trade at the middle of the new FOMC target range after the next increase. The uptick in March odds also comes after Yellen reiterated in semi-annual testimony to the House and Senate Tuesday and Wednesday that waiting too long to tighten policy “would be unwise.”