From Tyler Durden: The Federal Reserve jawboning has gone well… too well. Dudley, Harker, Kaplan, Williams, and Brainard have managed to push the market-implied probability of a March rate hike from around 20% to 90% in only a week.
The Fed has cornered itself, as the cabal has demonstrated many times in the past that it doesn’t want to surprise the markets with any moves (or non-moves).
It’s worth noting that Bloomberg’s WIRP function, as seen above, uses midpoints, and thus is likely overvaluing the probability of an interest rate increase. Still, the trend is unmistakable — the markets now firmly expect a rate hike this month, and are pricing things in accordingly.
What happens to Fed credibility if they do not hike rates now? That remains to be seen, but bonds are selling off again today, as they did yesterday, in a clear sign that investors are preparing for higher rates in the near term.
The iShares Barclays 20+ Year Treasury Bond ETF (NASDAQ:TLT) was trading at $118.81 per share on Thursday morning, down $0.66 (-0.55%). Year-to-date, TLT has declined -0.27%, versus a 7.08% rise in the benchmark S&P 500 index during the same period.
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