Provided Gertrude Chavez-Dreyfuss and Laura Matthews
New York (Reuters)-Bond investors buy longer terms to 10 years debt and increase betting due to a more sudden yield curve, hoping that the Federal Reserve Bank will reduce interest rates this week after nine months of pause.
The Federal Open Market Committee of the US Central Bank’s Policy is expected to reduce its reference rate by 25 base points (BPS) to 4.00-4.25% at the end of the two -day meeting on Wednesday, with a weakened labor market with moderate inflation.
Before deciding on the rate, fixed income investors add the duration of portfolios – a step aimed at lower interest wishes. The duration measured within a year before the term indicates how much the bond price is likely to rise or decrease when the rates change.
In general, when rates decrease, higher -term bonds increase the increase in value compared to those with lower duration. Long -term betting usually includes the purchase of longer date assets.
From a long end to short deadlines and derivative financial instruments, the market has gained confidence that the Fed is ready to reduce borrowing costs after the latest data showed that August. US unemployment increased to 4.3%and jobs were much lower than the prognosis.
These data and other latest figures have shown that the labor market is worse than Fed was stalled because of January. It reduced its tariffs.
On the other hand, the FED double power of power to control inflation and maximize employment, August. The consumer price index was higher than expected last week, although manufacturers’ prices were better than expected.
“The overall market trend is a bit more to make the bond purchase image similar to this scenario when the norms are likely to be reduced,” said Katheri Kaminski, Chief Research Strategist and Alphasimplex Group portfolio manager.
“They try to overtake the Fed to be ready to reduce the possible speed reduction. Another is: What is the result of that? How many incisions and do inflation still have something to think about?”
Everything about duration
Vishal Khanduja, Morgan Stanley Investment Management Boston Morgan Stanley Investment Management, a fixed income team, said that in the last six weeks in the last six weeks, the sector in the last six weeks.
“If the Fed moves from restricting Dovish and, for example, political norms, the next three meetings will decrease from 4.25% to 3.25%, then you can clearly say that your total interest rate curve should also be lower,” Khanduja noted.
“This means that the higher the duration you have in a fixed income portfolio, you should mathematically get a positive return because your duration is directly sensitive to the harvest.”
JP Morgan in its latest Treasury study since September 8th. He said the percentage of all customers who are long long increased to 30% compared to 28% last week, and from early August declared direct lengths.
In short -term fixed income areas, money market funds have also extended the duration in the hope that it will reduce the rate. Government Money Market Funds have extended the average weighted term (WAMS) from 3.4 days to averaging 40 days, while the main funds extended the last month for 2.2 days-29 days,-Teresa HO, Teresa HO, JP Morgan CEO and CEO JP Morgan.
She added that both government and Prime Fund Wams have been the highest level since early September and for the longest time since 2021. June
Meanwhile, on September 10, CME Group data showed options for the Future Transactions of the Future Funding Rate (SOFR), which in September. At the end of September Finally, there is 96, and this trade means that the average three -month Sofr September December. Will be less than 4%over the period.
The SOFR, following the reference Fund Futures, reflects the cost of borrowing cash overnight and the Treasury hostage. The interest of the future transactions of the open Sofr that day was the record of all time-15.1 million.
Staging Trades continues to grow forward
Bond investors have also continued to accumulate Stowiers-the popular trading this year, especially in the Treasury Five/30 YEAR. They buy a shorter end of that curve in the hope that the Fed rates will be reduced, but selling a 30 -year bond by accelerating the latter’s harvest higher because of the constant concerns of the US fiscal deficit.
In the US, 5 years/30 years harvest curve on September 5 Decreased to 126 BPS, which is the widest in more than four years, but narrowed to 104.8 BPS on Monday. Investors said there is now an opportunity to reboot that trade.
Jeffrey Klingelhofer, CEO of Aristole Pacific Capital and Portfolio Manager at Newport Beach, California, said that a sudden curve can be obtained in situations where inflation remains persevering if the tariffs are encouraged by the Fed to pause its cycle of relief.
“In that case, you really don’t need rates to decrease. Inflation can just get up for a long time.”
On Wednesday, Fed will also release upgraded quarterly economic forecasts, including tariff forecasts drawn on a widely monitored DOT plot. June The points of the meeting showed that the average expectations of policy makers were 50 BPS distances this year, with a decline in 2026 and 2027 BP.
Analysts said there is a risk this year that the average prognosis will show two more tariffs.
(Message about Gertrude Chavez-Dreyfuss; edited by Alden Bentley and Paul Simoo)
