The Bank of Russia unexpectedly maintained its key interest rate at a record-high 21% , defying analysts’ expectations of another significant hike as inflation remains stubbornly elevated. The decision marks a shift toward a more measured approach in balancing economic growth and price stability. Key Details Inflation Concerns: Annual inflation climbed to 8.9% in November, well above the central bank’s 4% target , with inflation expectations reaching 13.9% in December. Policy Rationale: The central bank cited the significant tightening of monetary conditions after October’s 200-basis point hike as sufficient to resume disinflationary processes. Governor Elvira Nabiullina emphasized avoiding both economic overheating and severe slowdowns. Economic Overheating: Elevated government spending on the war in Ukraine and social programs, coupled with labor shortages and rising wages, have fueled strong domestic demand, exacerbating price pressures...
The US bond market, already reeling from its worst selloff in six months, is about to face a pivotal 10-day stretch that could set the tone for the rest of the year.
Kicking off this critical period is the Treasury Department's announcement on Wednesday, revealing the scale of upcoming debt sales, followed by the monthly payroll report on Friday, which will provide key insights into the health of the economy and potential for further interest rate cuts by the US Federal Reserve.
Adding to the tension is the Nov 5 presidential election and the Federal Reserve's meeting on Nov 7, which will be its first since it began easing monetary policy in September.
Treasury prices have fallen sharply over the past month, with concerns growing that the continued strength of the US economy will limit how deeply the Fed will cut rates. Investors are particularly wary of a Donald Trump election victory, which could drive yields higher due to speculation that his policies, such as tax cuts and tariffs, would fuel inflation.
Despite the Fed's initial rate cut last month, traders have dialed back expectations of further swift cuts as recent data points to a robust economic expansion. This has led to a spike in yields, pushing up borrowing costs across the board and sending Treasuries towards their first monthly loss since April.
The next two weeks are filled with risk, according to Alex Chaloff, CIO of Bernstein Private Wealth Management. Key events, including the Treasury debt auctions and the release of payroll figures, will likely influence whether the Fed continues easing rates. Economists expect the US to have added 110,000 jobs in October, but any major deviations could sway the Fed's next move.
The upcoming Fed decision will also be influenced by the personal consumption expenditure (PCE) price index, the central bank's preferred inflation measure, which is expected to show easing price pressures. Other notable events include corporate earnings reports from major companies and a meeting of Chinese policymakers, which could further shake global markets.
While options premiums to protect against rising yields have surged to their highest levels this year, the upcoming news cycle could either intensify the bond market selloff or provide relief, depending on the economic and political outcomes.
For bond traders, the next two weeks will be a "potent cocktail of potential volatility," according to Sinead Colton Grant, CIO of BNY Wealth, with the Fed's interest rate decision and the election outcome likely to dominate market sentiment.
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