Bonds Tank on Fed Hawkishness
US bond prices continue to sink this week, with bonds soaring, on the back of hawkish comments from Fed’s Brainard overnight. Speaking at a conference in Minneapolis, Brainard told the audience that she believes the run-off in the Fed’s balance sheet will happen at a much quicker pace than the last time the Fed shrank its balance sheet. The Fed governor noted that the Fed will likely begin shrinking its portfolio as soon as next month and with raise rates “methodically” to return monetary policy to a more neutral position.
Looking ahead, Brainard said such reductions "will contribute to monetary policy tightening over and above the expected increases in the policy rate reflected in market pricing and the Committee’s Summary of Economic Projections."
Given that Brainard is usually among the more dovish members of the Fed, these comments have sparked significant movement in markets. Traders are taking the comments as a clear signal of the more hawkish shift underway at the Fed, echoing comments made by Draghi on the back of the last FOMC meeting. Tonight, traders will receive the minutes from that meeting and markets are bracing themselves for further hawkish details to be released.
Technical Views
10 Yr Bond
The market has now broken below the 94’06’3 level and is trading at fresh, multi-year lows. With both MACD and RSI bearish, and with yields soaring, the outlook remains skewed towards further downside in the near term. Bulls will need to see a topside break of 95’15’6.
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