Are Bond Traders Banking on Big Rate Cuts as the Fed Falls Behind?

(Bloomberg) — Traders in the bond market are preparing for‍ potential interest rate cuts in September, but ‌are also making additional bets in case the US economy experiences‍ a sudden downturn that would require the⁤ Federal Reserve to take more aggressive action.

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With Treasury bonds seeing gains for the third consecutive month, investors are now ‌anticipating at least ‍two quarter-point rate reductions this year, which is slightly more than what policymakers have indicated. Some traders ⁤are taking it a step further in the derivatives ‌market, placing bets that would pay off if‍ the central bank decides to implement a half-point cut in mid-September ⁣or starts cutting rates sooner.

Although this is still considered a less likely scenario, the speculation around the necessity of such a move has been growing due to ‍signs⁣ that both companies and consumers are struggling with the⁤ highest benchmark rates ⁢in two decades. Despite a decrease in inflation, investors are becoming‌ more worried about potential weaknesses in the labor market, ⁣which is something that Fed officials have mentioned they⁤ will be monitoring ‌closely….

2024-07-28 14:00:00
Originally posted on finance.yahoo.com