Traders Embrace September Fed Rate Cut

Julia Coronado, President and founder of Macropolicy Perspectives, joins to talk about the June FOMC meeting and whether there'll be more Fed cuts than are being priced in.

Bond traders priced in an earlier start to expected Federal Reserve interest-rate cuts on fresh clues the US job market is losing momentum.

Swap contracts tied to Fed policy shifts briefly traded at levels indicating the Fed will lower rates as soon as September, versus October previously. The move stalled amid a jump in short-term euro-zone yields after comments by European Central Bank President Christine Lagarde prompted traders to trim wagers on another ECB rate cut this year.

With more comprehensive May employment data to be released Friday, an unexpected increase in new jobless claims sparked the shift in the Fed outlook. The US Treasury market rallied in tandem, following its biggest daily advance in two months on Wednesday, also in response to a weak job-market indicator.

“The economy is slowing,” Krishna Memani, chief investment officer for Lafayette College, said on Bloomberg Television. “The hard data is softening. There is a substantial trend for slowing in the economy” that “gives the Fed the path to cut rates, not today, but in the later half of the year.”

The two-year Treasury yield, most sensitive to Fed policy expectations, was back to little changed after falling as much as four basis points, while long-maturity tenors held small gains. Swap contracts continued to fully price in at least two quarter-point cuts by year-end.

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