21 Sep Locking bias
The big news of today is the interest rate and policy announcement from the Federal Reserve due at 12:00 pm MST. The market is not anticipating a rate hike, and neither are we. With the election just weeks away, a hike now would be viewed as harmful to the incumbent party. The most significant part of the story will be the comments from Fed President Janet Yellen during the press conference at 12:30, following the release. The markets will be intently listening for any hints as to when they intend to hike. We expect her to state that we are near full employment and that they anticipate inflation to continue to move towards their 2% target. She will use this as support to prepare the markets for a likely hike in December.
Overnight, the Bank of Japan decided to keep their 10-Year Japanese Bond at current levels and will adjust their pace of bond buying to maintain a near 0% rate. They are also hoping to push inflation up towards the same 2% target our Fed is seeking here in the states. The BOJ stated they will consider deeper rate cuts if that is what is required to accomplish their goal.
With the Fed announcement expected soon, we can anticipate an elevated level of volatility. Although bonds may gain some strength after the announcement, the safe play will be to lock in to avoid the potential impact of a negative reaction to the news.