Big Bond Investors Say Not The Time To Abandon Fixed-Income Assets
$VXX
The chance of a Fed interest-rate increase this week is too close to call. The bond market suggests there is no need to worry about the meeting being a cliffhanger because policy makers will wait.
The probability of a move at the Fed’s meeting this week is about 28 %. While the US economy is improving, slowing growth elsewhere combined with rising financial-market volatility are reasons to hold off.
Investors are betting it will not be close.
Futures contracts show the odds of a shift this month have dropped to 28%, according to the data. Investors say that probabilities are about 40% for the Fed’s October meeting and 59% for December. The figures are based on the assumption that the benchmark will average 0.375% after the 1st increase, Vs the current target range of Zero to 0.25%.
The US economy continues to recover some, but for most market participants, volatility of the market is much more important in evaluating what the Fed will do.
US Treasury 10-year Note yields were little changed at 2.32% Monday according to the data.
Bond market volatility rose in August to the highest level since February, based on Merrill Lynch’s MOVE Index. The Chicago Board Options Exchange’s Volatility Index (VIX) measures expected stock-market swings, surged last month to the most since Y 2009.
The biggest bond investors say it is not time to abandon fixed-income assets.
Stay tuned…
HeffX-LTN
Paul Ebeling
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