Traders have adjusted their expectations to include the possibility of two rate hikes in the coming months, and are currently pricing in roughly a 50% chance of a move at the next Federal Open Market Committee meeting scheduled for September 16. In a notable twist, the more hawkish tone struck by Fed Chair Kevin Warsh on Friday has effectively pushed market rate expectations back to levels seen around the time of his July 29 press conference, a moment when short-term yields had actually declined.
Prior to Warsh's speech, SOFR futures yields were largely flat for the day; they have since climbed by as much as approximately 6.5 basis points. Yields on longer-dated bonds appear to have clawed back a significant portion of their earlier losses, while the impact of Warsh's hawkish stance has been even more apparent in the currency markets. The euro fell to $1.16, the Mexican peso drifted back toward the 17-per-dollar mark, and the Japanese yen edged closer to the 160-per-dollar level.
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