BPN Feed

While the tightening process is happening at a very glacial pace, monetary policy globally is at a hawkish inflection point. New Zealand’s central bank is on track to hike rates on 10/5 (Tues night/Wed morning), becoming the second developed market to increase after Norway, while the approaching US jobs report (on Fri 10/8) is very unlikely to be weak enough to forestall Fed tapering (the St is modeling +515K while it would probably take ~150K or worse for the Fed to not proceed w/tapering at its 11/3 meeting (and the FOMC minutes on 10/13 will likely have a hawkish bias to them). Meanwhile, the ECB on 10/28 will outline its tapering agenda and the BOE on 11/4 (one day after the Fed) will likely set the stage for rate hike on either 12/16 or 2/3. Given these catalysts over the coming weeks, it’s hard to be bullish on Treasuries and we suspect yields will additional upside risk (which means tech has further downside risk).

Perhaps the market is detecting a change in the Fed’s reaction function in that officials haven’t expressed the level of disappointment with the most recent jobs report that some had come to expect. There is just about complete unanimity for tapering to start in Nov or Dec and it would take a horrendous jobs report on 10/8 (probably 150K or worse) to forestall a reduction in QE from occurring this year.