Last Fed Meeting of the Year
Prior Week Summary
The recent bout of market volatility seems to be accelerating into year-end as concerns over economic growth prospects and geopolitical risks take center stage. Equity prices, as measured by the S&P 500, fell an additional 1.5% last week. The risk-off sentiment brought the 10-year Treasury note yield to trade as low as 2.82% mid-week, prior to ending the week at 2.87%. In economic news, the last reading of the consumer price index before the holiday season was unchanged in November, which brought the year-over-year change in core CPI to 2.2%. The report suggests that the underlying inflation rate is relatively consistent with the Fed’s 2% objective, which aligns well with the market’s anticipation for a 25 basis point rate hike at the December FOMC meeting.
As of this writing, markets are pricing in a nearly 75% chance of a 25 basis point hike on Wednesday. Given the relatively public criticism the Fed has taken from the administration, many in the market are expecting a “dovish hike”. Accordingly, the market will likely be focused on the press conference and the dot plot for clues as to current thinking of the FOMC and any changes to the forward guidance.
The Look Forward
This publication will be taking a brief sabbatical into year-end and will continue after the New Year.
Sources: Bloomberg Finance L.P., (Treasuries) Chatham Financial (Swap Curves), FHLB Boston, Chicago, Dallas, Des Moines for FHLB Advance Rates. Wells Fargo Brokered CD Indications.
Market Implied Policy Path (Overnight Indexed Swap Rates)
Source: Chatham Financial
Fixed Income Snapshot
Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit http://www.chathamfinancial.com/legal-notices/.
Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions.