Bond Investors Are at a Crossroads With Fed Pause In Sight
- Inflation trend sparks bets rate increases will end in March
- Open interest in Treasury note futures swells in rally
The Marriner S. Eccles Federal Reserve building in Washington
Photographer: Andrew Harrer/BloombergThe emerging consensus that the Federal Reserve will raise rates only one or two more times has ushered in a new set of dilemmas for bond investors, who now must decide which parts of the market will fare best under the circumstances.
The US Treasury market reached an inflection point Thursday when a report showed that consumer inflation rates declined to the lowest levels in more than a year, and Philadelphia Fed President Patrick Harker 15 minutes later said he favored another downshift in the pace of rate increases. Market-implied expectations for the central bank’s February meeting gravitated further toward a quarter-point hike instead of a half-point, and for the first time gave small odds to the possibility of no move at all in March.