The US bond market is witnessing fluctuations due to predictions of interest rates ranging between 3-6% under an extended high Federal Reserve (Fed) scenario, as per a report published on Tuesday. The market is currently pricing in 59 basis points (bps) of cuts with a year-end 2024 Fed funds rate at 4.73%, down from over 80 bps previously.
These adjustments are attributed to the market’s anticipation for rate reductions next year. Specifically, the forecasted Fed dots for next December are expected to be between 4.25%-6.25%, primarily around 5%.
The ‘long run’ dot, a metric used to gauge long-term interest rates, is moving higher, indicating a potential increase in the future. The bond market could potentially experience significant changes in trends if the Fed decides to hike rates this November.
The shift in the bond market underscores the influence of the Federal Reserve’s monetary policies on financial markets. Investors and analysts will closely monitor any changes in the Fed’s stance, particularly its decisions on interest rates, which could significantly impact bond prices and yields.
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