Some are hearing rumors that the Fed will remove the word "measured" from its statement tomorrow. I guessed last week that this is what the discussion would be about but personally see the Fed going with the same statement. They will comment on the moderate pace of growth and there is an outside chance they will comment on contracting credit spreads. I don't see the Fed being done tomorrow and I don't see them being done until they have spooked the long end towards higher rates. It is a mirror image of Spring 2003 where the Fed continued cutting until the bond market finally reacted to a fear of deflation rather than inflation.
I am not sure when the bond market will get the message but if traders really are hoping for an end to the rate hikes, tomorrow could get ugly. I see the bullish action in financials and utilities with the intraday bounce in bonds so maybe that is how people are playing.
The strategy of shorting the long end with today's highs as a stop is looking more attractive.
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