Treasury Traders Nervous

Treasury Traders Nervous

US treasury traders are bracing for heightened volatility next week as Fed Chairman Jerome Powell ushers in a new era of press conferences after every meeting, while the US and China meet again for trade talks.

The FOMC is expected to keep interest rates unchanged following the 9 hikes since Y 2015. But investors see scope for the Fed’s statement to tilt dovish, or for Chairman Powell to signal as much in his comments, a shift that could help drive yields lower.

Also in focus

Any hint that the Fed is closer to ending its balance-sheet runoff, which, combined with the deal to reopen the government, could bolster risk sentiment at the expense of Treasuries.

There is more

Progress on the trade front may lift yields as it’s seen as easing global economic headwinds. And the US Treasury is slated to detail issuance plans for the coming 3 months, with sales projected to be at a record level.

January labor data will round out the week, with the effects of furloughed government workers potentially boosting the jobless rate. Add it all up, and traders may have some countervailing forces to contend with.

Next week will be a busy week. People want to know what Chairman Powell has to say about the balance sheet, with many wondering if they will adjust what they are doing now.

At 2.76%, the benchmark 10-yr Treasury yield has been stuck in a 14 bpt range the past 2 weeks. It’s rebounded from this month’s low of 2.54% on improved investor confidence after Fed officials indicated they will be patient in adjusting rates further.

Bond-market volatility as gauged by options has dropped from a 10-month high reached in December.

Chairman Powell’s Turn

Chairman Powell will take to the stage as his counterparts at other major central banks appear to be stalling in efforts to normalize monetary policy.

This week, ECB President Mario Draghi said risks to growth “have moved to the downside,” while the Bank of Japan cut its inflation outlook.

Before the Fed’s decision Wednesday, traders will also get details on the supply they will have to absorb in the months ahead. That morning, the Treasury is expected to say at its Quarterly refunding announcement that it will maintain elevated sales.


  • No Fed speakers are on the docket until after their decision Wednesday
    • 30 January: FOMC decision, Powell press conference
    • 1 February: Dallas Fed’s Robert Kaplan speaks in Texas

Have a terrific weekend.

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