The investment vehicles have placed shorts on a key overnight rate that moves with the Fed benchmark. Matching bets have tripled over a month. The short sellers will benefit if Fed Chairman Jerome Powell rejects “dovish” monetary policy. Powell will be speaking at the Fed meeting in Jackson Hole this week. He is expected to speak Friday at 10 a.m. Eastern Daylight Time.
The stock and bond markets are already feeling the effects of higher interest rates. In the first half of the year, US Treasury bonds collapsed by 9 percent because the central banks in the majority of the major economies hiked interest rates.
Recently, however, bond prices have rallied as markets assumed weaker inflation. These zigzags will continue, says Triple T Consulting’s Sean Keane: “The market is constantly trying to anticipate the peak of the interest rate cycle, only to then back off, fearing that central banks will do more.”
While bond prices fell, the particularly interest-sensitive US government bonds with two- and three-year maturities rose by more than 10 basis points on Monday. However, they fell behind by the end of trading. The yield on ten-year bonds rose by more than 3 percent, as it did last time in mid-July.
(Bloomberg/cash)