Traders Are Fully Convinced About Another Fed Hike Next Week

Traders now have no doubt: the Federal Reserve will start raising interest rates once again next week.

The implied interest rate on the swap contract linked to the Fed’s July 26 rate decision rose to 5.33% — a quarter point higher than the 5.08% effective level of the policy rate most days since May 4.

Treasury yields across maturities were down between three to seven basis points, with the policy-sensitive two-year rate hovering around 4.7%. Yields slumped after data showed US retail sales rose by less than forecast, before quickly moving away from session lows as the complete report along with revisions showed still robust consumer spending.

“The market’s perception, probably rightly so, at this point is that a July rate hike is a forgone conclusion,” Guy LeBas, chief fixed income strategist for Janney Montgomery Scott said by phone. Fed Chair Jerome Powell “would in order to negate a rate hike now in the market have to come out and say ‘we are not going to do it guys’.”

Traders Fully Price July Hike | Fed swaps linked to meeting price in a 25bp rate move