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Fed decision day

Today is Fed decision day on rates. At 2 pm J Powell will announce the new fed funds rate that sets the cost of overnight money and serves as anchor for the whole curve. Investors expect, through fed fund futures that there will be no change in rates with 100% probability. If Powell were to raise rates today, it would be a huge surprise. But even if rates remain constant, the 2 year and the 10 year Treasury bonds are touching yields not seen in 17 years, since before the #gfc. On top of that, the relaxation of the #ycc in #japan is pushing #jgb yields up wich affects the US treasuries as well. That in turn is putting pressure on #investmentgrade and #highyield bonds since, even if spreads remain constant, their yields are going up, simply because the basis, the treasury bond, is yielding more. Furthermore, if there is a pause in this meeting, it may be difficult for the fed to hold rates steady for the remaining of the year if they see #cpi going up again. And the market keeps discounting cuts for next year.

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Chart source: Bianco research.

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