From PIMCO over the weekend: 3 bond market signs pointing to US growth & pressure on Fed to hike
They note:
- a rebounding U.S. economy
- stability in commodity prices
- encouraging signs in Europe
These "all suggest that the risks of a further decline in U.S. inflation have diminished - and that pressures therefore are building for the Federal Reserve to consider increasing its policy rate"
Highlight 3 gauges in particular ... providing strong signals about the bond market's outlook for U.S. economic growth and Fed policy:
1. Treasury yields
- Yields have moved well off their lows and for many maturities are at their 2015 highs.
- Well above its 2015 low set in January amid signs of a sharp slowdown in U.S. growth ... the yield increase suggests the opposite is bow occurring
2. Yield curve
- A historically reliable indicator
- Yield curve has been steepening of late
- Historically, this has signaled faster economic growth that the Fed often tries to quell via rate hikes
3. Forward money market rates
- Signaling a rise in expectations for future Fed rate hikes
Concludes with:
If corroborated by economic data, a Fed rate hike will arrive, possibly by September, placing upward pressure on yields and boosting market volatility more generally.
