Aug 282018

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By G. Steven Bray

Watching paint dry has been more exciting this summer that watching interest rates. Even the latest impeachment bait couldn’t get rates to move out of their current range. When will the boredom end?

If history holds any clues, probably sometime in Sep. Why Sep? Well, first of all, traders will be back at their desks trying to make money. Tradeflow movement in bond markets is more likely when there are, well, traders.

One of the events that might influence tradeflows is the Federal Reserve meeting at the end of Sep. The Fed is widely expected to raise short term interest rates once again, and market watchers will carefully parse the post-meeting pronouncements to glean whether another hike is likely in Dec. A couple of Fed members recently have cautioned against a Dec hike.

Before we get to the Fed meeting, we’ll see new inflation data in addition to more headlines concerning tariffs, Turkey, and Trump – and, of course, the mid-term elections. Trade deals with China and our NAFTA partners could remove some of the risk premium currently built into rates – edging rates higher again as we’ve seen the last couple days. If the Turkish crisis proves to be contagious, a new risk-off trade could lead to lower rates. And any political developments that investors believe could imperil the current economic boom would do the same.

I realize I’m being somewhat equivocal concerning the direction of rates, and that’s because I don’t see a lot of reasons for rates to move – except in response to headlines. If you’re floating your rate right now, consider that rates still are close to their recent lows, and I think it will take more significant headlines to move rates lower than higher.

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