Bond Traders Smash Fed-Hike Odds Lower as Stocks Whipsawed

Parsing What the Fed May Do Amid Market Selloff

Bond traders and the Federal Reserve were almost perfectly in sync about the pace of policy tightening this year, until the rout in stocks shook things up.

The interest-rates market is signaling just 2.3 Fed hikes in 2018, down from 2.76 a week ago, according to fed funds futures data compiled by Bloomberg. The median projection from central-bank officials is for three increases this year, a stance reiterated Thursday by Kansas City Fed President Esther George. New York Fed President William Dudley went so far as to say four hikes were possible if the economic outlook further improves.

But things don’t look so rosy after the S&P 500 Index fell more than 10 percent from its peak, entering a correction. A renewed dive in equities on Friday sent investors rushing for a haven, driving the two-year Treasury yield down as much as 10 basis points to about 2 percent. It reached 2.18 percent this month, the highest since 2008.

“Anything risk is breaking down and true flight to quality is happening,” said Glen Capelo, head of rates at Academy Securities. Stocks are “forcing a possible sentiment shift about Fed rate hikes.”

— With assistance by Elizabeth Stanton

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