Will There Be More Trouble for the Bond Markets This Week?
Bond markets’ troubles continue
The US bond markets (BND) continued to struggle and posted another negative close for the week ending October 27. The economic data reported last week was better than expected and cemented the chance of a December rate hike. The progress made by the Republican Party towards introducing a tax reform bill has also added to the possibility of a further rise in bond yields in the coming weeks.
The Fed Watch Tool from the Chicago Mercantile Exchange (or CME) shows a 97.8% probability of a Fed rate hike at the December meeting.
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Bond market performance and speculator positions
For the week ending October 27, the ten-year yield (IEF) closed at 2.4%, gaining three basis points as compared to the previous week’s close. The two-year yield (SHY) closed at 1.6%, up by two basis points, and the longer-term 30-year yield (TLT) closed at 2.9%, up by three basis points, last week.
According to the latest Commitment of Traders (or COT) report released on October 27 by the Chicago Futures Trading Commission (or CFTC), speculators increased their bets on the ten-year US government bond after four weeks of declines. The total net bullish positions as of Tuesday, October 24, were 153,597 compared to 106,291 contracts a week before.
Will bond markets slide further this week?
Bond (AGG) markets have a lot of data and events to react to this week. The economic calendar is filled with important economic data like PMI data and non-farm payrolls, both of which are expected to bounce back from the hurricane-related slump. The US House Ways and Means Committee is expected to present its tax reform bill on November 1, which is likely to add to the pressure on bond markets.
In the next part of this series, we’ll look at the reasons behind the euro’s sharp decline in the previous week.