Treasuries resumed their torrent five-week advance as the JOLTS job openings hit the lowest since March 2021, reinforcing speculation the Federal Reserve will be able to cut interest rates next year to prevent a recession. The JOLTSs data trailed all estimates in a Bloomberg survey of economists.
Concerns are rising about the markets being too fast in anticipating Fed easing, underscoring a major risk for all participants in anticipating a pivot. If a pivot does not occur and the Committee opts to keep borrowing costs higher for longer, volatility may greatly increase.
Bloomberg has written extensively about the unknown influence of zero dated options—options that expire that day. Bloomberg is now writing about the influence of technology and algorithmic trading models that operate on headline fueled momentum in an illiquid market. Is this a major reason as to why Treasury yields have plummeted in the last five weeks? Today it appears every headline is about a Fed pivot.
Five weeks ago the mantra was a “six handle” on the ten year Treasury was all but inevitable as yields surged about 80 bps in six-eight weeks rising to 4.99%. At the time of this writing, the 10-year is yielding 4.18%.
Swap contracts believe the overnight rate will be 4.06% by the end of 2024 from 5.25%-5.33%. currently. The contracts also imply a 50% chance of a rate cut in March. The Federal Reserve’s Dot Plot is suggesting the overnight rate to be around the current level of 5.25%.
A multitude of firms are warnings about market optimism concerning rate cuts, firms including BlackRock, Goldman, and Bank America.
The Federal Reserve has been adamant about achieving a 2% inflation rate and if they begin lowering rates before such is in sight, the Central Bank risks losing credibility, rising the odds that inflationary expectations could start to become unanchored.
Equites were mixed.
What will happen today? What will the ADP private sector employment survey suggest?
Last night the foreign markets were up. London was up 0.47%, Paris up 0.34% and Frankfurt up 0.34%. China was down 0.11%, Japan up 2.04% and Hang Seng up 0.83%.
Futures are nominally higher as odds are rising that there will be a globally coordinated monetary policy pivot. Are these sentiments realistic based upon Central Bank statements? The 10-year is off 7/32 to yield 4.19%.
