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Summary of article:
The Fed is likely to remain on hold this time, but if post-meeting comments are hawkish, the market may reevaluate the end point of raising interest rates, which would trigger a wave of recent profit-taking and send the U.S. Long positions in Treasuries will be liquidated.
The US Federal Reserve (Fed) is scheduled to announce its latest interest rate decision at 2 pm. On the 28th. It is expected that the market will keep interest rates unchanged. However, if an aggressive message is issued, investors may risk reversing their long bets on US government bonds.
If the Fed decides to remain on hold, Mr. Chairmanwashoo There may be pressure to explain why decision-making officials do not take action at this time. Just last month, officials voted unanimously to raise interest rates in response to the growing economic crisis, raising the target range for the federal funds rate by one point from 3.75% to 4%.inflation .
“It’s very likely that the Fed will not raise interest rates in October in line with market expectations,” said Ross, chief economist at Wolfe Research. Although September’s Consumer Price and Producer Price report showed that inflation was hotter than expected, “We believe Washer and other Committee members are concerned about inflation and are still interested in raising interest rates further and would send this signal in a more implicit manner.”
Interest rate forecasts released last month showed that Fed officials favor another rate hike this year. As of Tuesday, investors believed there was less than a 10% chance of a one-point rate hike, but the market already expected the Fed to raise interest rates at its final policy meeting of the year in December.
Bloomberg analyzed that if Washer issues an aggressive signal on key issues such as inflation at the press conference, it could prompt the market to reevaluate how much the Fed will ultimately raise interest rates, which in turn would trigger massive liquidation of long positions accumulated by traders who have recently piled into US debt due to demand for safe havens, resulting in huge losses.
Citigroup strategist Bibo said that ahead of the Fed meeting, the biggest change in the market was that traders strategically shifted into long positions in US Treasuries and European bonds. He said traders were actively building long positions to profit from the recent rise in bond prices, but the overall market structure still remained short.
Open interest data from CME Group showed that over the past week, traders gradually bought the U.S. It has reduced its short positions in Treasuries, while betting that the bond rally will continue. This wave of gains was mainly driven by market skepticism about the sustainability of AI trading and increasing pressure on the French bond market.
“The only obstacle between current market pricing and the scenario of raising interest rates is the Federal Reserve’s policy guidance. If there is a change in views among policymakers, the direction is more likely to be to raise interest rates,” said Hosseini, portfolio manager at Columbia Step Investment Management.
During Asian trading on Wednesday, 2-year US Treasury yields held steady at 4.73%, while 10-year yields hovered around 5%.
Summary FAQ
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The market generally expects the Fed to keep interest rates unchanged, and the probability of raising interest rates in October is less than 10%; However, investors are still paying attention to whether the chairman sends any aggressive signals, as this could change the decision on the subsequent policy path.
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Because traders have recently established a large number of long positions in US Treasuries, if the Fed signals that inflation pressures are still high and interest rates may still be raised before the end of the year, the market will again revise its endpoint expectations for interest rates, causing bond prices to fall and be forced to exit long positions.
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Data from CME Group shows that traders have gradually reduced their short positions in US debt over the past week and started betting on continued bond gains; During the Asian session on Wednesday, the 2-year US bond yield was around 4.73%, while the 10-year US bond yield was around 5%.
