US bonds the centre of the financial markets So, with the US bond market at the centre of the financial world, dictating flows in every other asset class (even down to sentiment around holding micro-cap equity), Wednesday night’s (04:00 AEST on Thursday) FOMC meeting is critical. Will the Fed alter its language around the ‘underutilisation’ of the labour market? This change seems 50/50, although after only adopting this view in July it seems a little early to change this just yet. Will the Fed alter its stance that ‘it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends’? This is the area which divides the market and is fairly binary in the sense that if it continues to hold this view, then US bonds will be bought, the USD should fall and global markets should find buyers. On the other hand, amending this view could be taken negatively by the bond and equity space.
I have bid a small wager long on US 20 yr. bonds because
* of what has been said above and I think the US will maintain its soft stance on monetary policy
* with Europe deflating its own currency it does not want to continue at a trading disadvantage with its currently high dollar
removed my bid in the opposite direction this morning.
