Bond traders are ramping up bets that the Federal Reserve will cut interest rates by half a percentage point in September instead of the standard quarter-point increment.
Edward Bolingbroke, Bloomberg NewsVishal Khanduja, senior portfolio manager at Morgan Stanley Investment Management, joins BNN Bloomberg to discuss Fed rate cut expectations.
That’s evident in the federal funds futures market, where softer-than-anticipated inflation data released Thursday morning unleashed a wave of buying of October contracts, which continued on Friday. Expiring Oct. 31, the contracts already fully price in a quarter-point rate cut at policymakers’ Sept. 18 meeting.
“The Fed is very well-placed to potentially cut in September,” said Marilyn Watson, head of global fundamental fixed-income strategy at BlackRock Inc., on Bloomberg TV. While she expects a quarter-point cut, “we think they’ll probably tee things up potentially in July. We know that the Fed has been very, very data dependent.”
Futures open-interest data from CME Group Inc. suggest that Thursday’s buying established new risk. Volume was just short of 260,000 contracts, a record for the October tenor. Buying interest remained high on Friday, with volume over 150,000 by 1:30 p.m. New York time
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