Bond yields drop as traders gear up for Federal Reserve pause

BLOOMBERG

Treasury yields fell amid market expectations that the Federal Reserve will keep its interest rates steady for the first time in 15 months to evaluate whether or not further tightening is needed. Bonds reversed course on Wednesday, with yields dropping across the curve, after another inflation reading showed signs of cooling. The market for wagers on the outlook for central bank policy shows traders now expect the benchmark rate to peak in September, instead of July. The S&P 500 fluctuated.
Fed policymakers are poised to pause their hiking of interest rates, while retaining a tightening bias that signals a resumption of moves if warranted. The rate decision and committee economic forecasts — the “dot plot” — was expected to be released at 2 pm in Washington. Chair Jerome Powell would hold a press conference 30 minutes later.
“A skip is NOT likely an all-clear sign that the Fed is done and that any easing is imminent,” wrote Brian Rauscher, head of global portfolio strategy at Fundstrat. “The odds for the next Fed action still favours a hike and that the central bank is still a long way away from being able to declare victory over inflation.”
Since the 1950s, the S&P 500 declined a median of 5.5% six months after the last rate hike, according to data compiled by Ned Davis Research. But in recent decades it’s been bullish for stocks, with the benchmark equities gauge climbing more than 10% six months later in four of the past five final rate hikes.
In corporate news, Advanced Micro Devices Inc gained after the chipmaker showed off its planned line of artificial intelligence processors. Charles Schwab Corp said it expects second-quarter revenue to fall by as much as 11%. UnitedHealth Group Inc sank as an executive said a recent increase in surgeries and other medical care might push expenses higher than anticipated.