Will the Bond Market Revival Continue This Week?


Jul. 31 2017, Updated 2:35 p.m. ET

Bond markets revived

US bond markets (BND) continued to recover with fewer chances for another rate hike from the US Fed this year. In its July meeting, the FOMC left the interest rates unchanged. The FOMC said that it would take more time to meet the inflation (TIP) goals. The change in the FOMC’s tone led investors to believe that the Fed will delay more rate hikes until the economic performance improves. Preliminary first quarter GDP data reported last Friday indicated that the US economy grew at a slower pace than expected. According to the data, the US economy is expected to grow 2.6% in the second quarter. Weak growth in the first quarter was downgraded to 1.2% from 1.4%.

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Bond market performance and speculator positions

For the previous week, the ten-year yield (IEF) closed at 2.291—compared to the previous week’s close of 2.237. The two-year yield (SHY) closed at 1.347 and the longer term 30-year yield (TLT) closed at 2.888 in the previous week. According to the latest “Commitment of Traders” report released on July 28 by the Chicago Futures Trading Commission, bond futures speculators decreased their net bullish positions in the previous week. The total net bullish positions stood at 280,684 contracts—compared to 282,329 contracts in the previous week. Speculative positions have been in positive territory for more than a month, which indicates that traders are looking at more gains in bond prices.

Week ahead for the bond markets

Non-farm payrolls data will play a key role in cementing the view for the next few weeks. Markets expect that 180,000 jobs to have been added in July. A number below this reading could mean a delayed rate hike from the Fed. A lower number could lead to some more gains in the US Treasuries (GOVT). If the data beat expectations, we can expect a minor sell-off. Investors would need additional proof in the form of data to believe that the Fed would turn hawkish again.


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