Futures traders aren't betting on any Fed rate hikes by mid-2022, no matter what the Treasury market suggests, DataTrek says
- Federal fund futures suggest traders expect no rise in US rates for several years, in contrast to the optimism reflected in the Treasury curve, DataTrek said.
- Fed fund futures imply a rate of 0.045% by mid-2022, compared with a current market rate of 0.09%, despite the steepening in the Treasury curve that reflects growing economic optimism.
- "The short answer to the question "are
Fed Fundsbeginning to think that the US economy will be strong enough to see a rate hike before mid-2022?" is a resounding, 100% 'NO'," DataTrek analyst and co-founder Nicholas Colas said in a note.
The US Treasury market suggests investors are betting on a swift improvement in the economy that could prompt the Federal Reserve to put up
But data analysts DataTrek say US futures show fixed-income futures traders are betting on no such thing."The short answer to the question "are Fed Funds beginning to think that the US economy will be strong enough to see a rate hike before mid-2022?" is a resounding, 100% 'NO'," DataTrek analyst and co-founder Nicholas Colas said in a note on Monday.
DataTrek contrasted the Fed funds futures curve with 2-year
Meanwhile, yields on the benchmark 10-year Treasury have risen to around 0.813% currently, from 0.505% in early August, marking a rise of almost 30 basis points, while the 30-year yield has risen by almost 50 basis points in that time to around 1.609%.
The widening gap between 2- and 30-year yields, which now stands at around 185 basis points, up from 150 basis points in early June, would suggest that fixed-income traders are betting on a material improvement in the US economy and that the shorter end of the Treasury curve will soon catch up. But, DataTrek points out, this is not necessarily the case."As much as the long end of the Treasury yield curve is starting to signal more market optimism about a US economic recovery, we're nowhere near escape velocity for the short end of the curve," Colas said.
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