Markets Price Almost 80% Chance of Fed Rate Hike in December

what happened

According to Market Talk, J.P. Morgan maintains its call for a 25-basis-point Federal Reserve rate increase in December. The bank's rates strategists see risks tilted toward higher Treasury yields, led by the front end of the curve. As they put it in a note, the bank is unwilling to turn bearish. If equities find firmer footing, J.P. Morgan would consider shifting to an underweight position at the front end of the Treasury curve.

Money markets now price an almost 80% probability of a December hike. Those odds rose after Friday's employment report came in stronger than expected.

Citi, meanwhile, has changed its view on U.S. Treasury supply. The bank no longer expects the Treasury to cut 20-year issuance, unless 20-year yields reach a material new high, perhaps near 6% and likely above it. The Treasury took no action at its latest refunding and signaled eventual coupon increases, though perhaps not at the very long end.

why it matters

The rate outlook also weighs on crypto. According to XS.com, Bitcoin shows signs of tentative dip-buying but has not reversed, as ETF outflows and expectations of higher U.S. rates still hold it back. It was last up 0.7% at $74,516.

market impact

US short-term bonds: expectations of a Fed hike push yields higher and prices lower

• ▼US short-term Treasuries pressure down — rising Fed hike odds after strong jobs data pressure bond prices
• ▼Bitcoin pressure down — higher US rate expectations and ETF outflows limit buying demand

tags

instruments