Bond brokers are reportedly hiking their bets in the hope that the US Federal Reserve will cut interest rates by 0.5%, instead of the conventional 0.25%, come September 2024. Analysts say that this was evident on 11 and 12 July 2024 as the markets responded to new consumer price index data (CPI).
Bond Brokers Positive About Substantial US Rate Cut In September
JP Morgan Wealth Management, a segment of JP Morgan Chase & Co. (JPM), indicated that the urban CPI decreased by 0.1%, making it the first month-over-month drop since May 2020. JP Morgan noted:
The softer inflation data, coupled with June’s employment report which underscores a balanced labor market with signs of easing, are welcomed developments for the Fed that should increase their confidence inflation is on its way back to the 2% target.
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According to Bloomberg data, a “wave of buying” was seen in the federal funds market. Buying at higher prices reflects a heightened expectation that the US central bank will move to cut interest rates. Bloomberg cited Marilyn Watson, head of global fundamental fixed-income strategy at BlackRock Inc. (BLK), who stated:
The Fed is very well-placed to potentially cut in September. We think they’ll probably tee things up potentially in July. We know that the Fed has been very, very data dependent.
It seems that traders do not expect July 2024 rate cuts and are rather focusing on the probabilities for September 2024. Based on information from CME Group Inc. (CME), the contract volumes on Thursday 11 July 2024 came in at just under 260,000. This activity continued on Friday 12 July 2024, with a volume of more than 150,000 in the early afternoon.
