The Fed meeting is a pivotal moment for the bond market

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The bond market sell-off is raising the stakes for the Federal Reserve’s monetary policy meeting this week and putting a spotlight on the central bank’s commitment to reining in inflation.

Traders widely expect the Fed to raise its benchmark interest rate on Wednesday for the first time since 2023. Traders are pricing in a 93% chance of a rate hike, according to CME FedWatch, a real-time forecasting tool.

If the Fed surprises markets by holding rates steady, it could accelerate the bond market sell-off that’s pushed up yields in recent weeks, analysts say. If the Fed raises interest rates by a quarter point, matching the market’s expectation, traders will still be scrutinizing remarks from Chairman Kevin Warsh.

The 10-year Treasury yield rose Tuesday and briefly touched its highest level since 2007, highlighting the sensitivity of the moment for markets. A mosaic of concerns are sending bond yields to multi-year highs.

For weeks, markets were highly uncertain about whether the Fed would raise rates or hold them steady this month, and odds fluctuated around 50% for each outcome. But after data released on Friday showed that consumer inflation remained sticky in August, traders began to shift their bets toward a rate hike.

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10-year Treasury yield hits 5%, critical threshold for US economy and markets

Now, if the Fed holds rates at their current levels, there could be a sell-off in bonds as investors question whether the central bank is doing enough to tamp down inflation that has worsened since the start of the war with Iran.

Treasury yields have marched higher this year amid a global bond market sell-off, pushing up borrowing costs for consumers, businesses and the US government.

If the Fed is unable to convince investors it is serious about reining in inflation, bond yields may move even higher, putting more of a pinch on consumers and the government and threatening to rattle the stock market.

“At this stage, it would be very difficult for the Fed to leave rates unchanged this week without eroding its inflation-fighting credibility,” Vail Hartman, US rates strategist at BMO Capital Markets, said in a note.

“Historically, the Fed has seldom deviated from rate decisions that markets have priced with such high conviction,” Hartman said. “Surprising with a hold would trigger a sharp rally in the front end of the curve and a sell-off in longer-dated Treasuries, [the] US dollar and risk assets.”

Bond prices and yields move in opposite directions: When investors sell bonds, prices fall and yields rise.

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At the Fed meeting in July, Warsh said he wants markets to move based on economic data and not just trying to game the Fed’s next decision.

He acknowledged the rise in Treasury yields at the time and said it was based on “market attention centered on real data and real economic developments,” welcoming the move.

“Market participants are learning to play the ball, not the referee — and market prices will continue to respond in the direction and magnitude they see fit,” Warsh said on July 29. “This is, in my view, a change for the better — and we’re just getting started.”

Since that Fed meeting, Treasury yields have continued to climb. The 10-year yield closed at 4.6% on July 29, and is now trading above 5%, at levels not seen in nearly two decades.

The two-year Treasury yield, which tracks expectations for Fed policy, is at its highest level in over two years, and about a full 100 basis points (1%) higher than the Fed’s benchmark interest rate.

Warsh said on July 29 that he wants to get an “unfiltered message from markets.” Now, markets are betting that the Fed will raise rates on Wednesday.

“[Warsh] has been talking hawkishly since June. Now, he has to deliver a rate hike,” Ed Yardeni, president of Yardeni Research, said in a note.

“After all, he promised to follow the financial markets’ lead. The 2-year and 10-year yields are clearly calling for a rate hike,” Yardeni said. “If they keep rising after Warsh’s presser on Wednesday, then he will still have a credibility problem.”

Yields have climbed this year for a variety of reasons, including rising corporate debt issuance, mounting government debt, nerves about inflation, expectations for central bank rate hikes and general policy uncertainty tied to the conflict in the Middle East.

At MUFG, head of global rates strategy George Goncalves said he originally expected the Fed would hold interest rates steady in September, but changed his call to a hike in response to factors including last week’s hotter-than-expected inflation report.

Goncalves said in a note that even though he thinks a rate hike might not even be the correct policy move, not doing anything would be “problematic,” given Warsh’s repeated comments that “inflation is a choice” and the Fed is committed to bringing it down to its 2% target.

“Warsh gave the market a vote on when the Fed should move, and the market has now definitively voted for September,” Stephen Myrow, managing director at Beacon Policy Advisors, said in a note.

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债券市场的抛售加剧了本周美联储货币政策会议的重要性，并凸显了央行抑制通胀的决心。

交易员普遍预期美联储将于周三上调基准利率，这将是自 2023 年以来的首次加息。据实时预测工具 CME FedWatch 的数据显示，交易员认为加息的可能性为 93%。

分析师表示，如果美联储出乎市场意料地维持利率不变，可能会加速近几周推高收益率的债券市场抛售潮。即使美联储如市场预期那样加息0.25个百分点，交易员们仍将密切关注主席凯文·沃什的讲话。

周二，10年期美国国债收益率上涨，一度触及2007年以来的最高水平，凸显了当前市场的敏感性。多种因素交织，推动债券收益率升至多年来的高位。

数周以来，市场对美联储本月是加息还是维持利率不变高度不确定，两种结果的概率都在50%左右波动。但周五公布的数据显示，8月份消费者通胀依然居高不下，交易员们开始将押注转向加息。

穆罕默德·埃瑟/阿纳多卢/盖蒂图片社

10年期美国国债收益率触及5%，这是美国经济和市场的关键门槛。

如果美联储将利率维持在当前水平，可能会出现债券抛售潮，因为投资者质疑央行是否采取了足够的措施来抑制自伊朗战争开始以来不断恶化的通胀。

今年以来，在全球债券市场抛售潮的背景下，美国国债收益率持续走高，推高了消费者、企业和美国政府的借贷成本。

如果美联储无法让投资者相信它是真心实意地要控制通胀，债券收益率可能会进一步走高，给消费者和政府带来更大的压力，并有可能动摇股市。

BMO资本市场美国利率策略师韦尔·哈特曼在一份报告中表示：“在现阶段，美联储本周很难维持利率不变而不削弱其对抗通胀的信誉。”

哈特曼表示：“从历史上看，美联储很少偏离市场高度预期的利率决策。如果美联储出人意料地维持利率不变，将引发短期国债价格大幅上涨，并导致长期国债、美元和风险资产遭到抛售。”

债券价格和收益率的变动方向相反：当投资者抛售债券时，价格下跌，收益率上升。

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在7月份的美联储会议上，沃什表示，他希望市场根据经济数据波动，而不是试图操纵美联储的下一个决定。

他承认当时国债收益率上升，并表示这是基于“市场关注真实数据和真实经济发展”，对这一举措表示欢迎。

沃什在7月29日表示：“市场参与者正在学习如何掌控局面，而不是听天由命——市场价格将继续按照他们认为合适的方向和幅度做出反应。在我看来，这是一个好转的趋势——而我们才刚刚开始。”

自美联储那次会议以来，美国国债收益率持续攀升。10年期国债收益率7月29日收于4.6%，目前已超过5%，达到近20年来的最高水平。

反映美联储政策预期的两年期美国国债收益率已达到两年多来的最高水平，比美联储的基准利率高出约 100 个基点（1%）。

沃什7月29日表示，他希望获得“来自市场的真实信号”。现在，市场普遍预期美联储将在周三加息。

“沃什自6月份以来一直发表鹰派言论。现在，他必须兑现加息承诺了，”Yardeni Research总裁埃德·亚德尼在一份报告中表示。

“毕竟，他承诺过会听从金融市场的指引。2年期和10年期国债收益率显然都在呼吁加息，”亚德尼说。“如果沃什周三的新闻发布会后收益率继续上升，那么他的信誉问题依然存在。”

今年收益率攀升的原因有很多，包括企业债务发行量增加、政府债务不断攀升、对通胀的担忧、对央行加息的预期以及与中东冲突相关的总体政策不确定性。

三菱日联银行全球利率策略主管乔治·冈萨尔维斯表示，他最初预计美联储将在9月份维持利率不变，但由于上周公布的通胀报告高于预期等因素，他改变了预期，认为美联储将会加息。

冈萨维斯在一份报告中表示，尽管他认为加息可能不是正确的政策举措，但鉴于沃什反复表示“通胀是一种选择”，而美联储致力于将其降至 2% 的目标，什么都不做也是“有问题的”。

Beacon Policy Advisors 的董事总经理 Stephen Myrow 在一份报告中表示：“沃什让市场投票决定美联储何时应该采取行动，而市场现在已经明确投票支持 9 月份。”