“The bias remains for lower yields, while waiting for the next pieces of relevant macro data,” said Marius Daheim, a senior rates strategist at SEB AB in Frankfurt. The comments from Rosengren “contain no clear signal for 2015 liftoff, either. I’d say the October FOMC is no longer a ‘live meeting.’ It’s hard to see any single data report until then potentially shifting the odds in favor of a hike at that meeting.”
The yield on the Bloomberg Global Developed Sovereign Bond Index fell below 1 percent last week to 0.97 percent, the lowest level since April.
The Institute for Supply Management’s non-manufacturing index fell to 57.5 in September from 59 in August, based on a Bloomberg survey of economists before the data are released Monday.
Markets are now pricing in the Fed to raise rates in March with two increases in each of the next two years, according to SocGen strategists, led by Vincent Chaigneau, London-based head of fixed-income and currency strategy.
“We expect rates to continue to trade in a range,” the analysts wrote. “Hence we maintain our neutral stance on Treasury rates as we revert back to global data dependence mode.”
Fed Outlook
The odds of a Fed rate increase were about 34 percent by the December meeting, 42 percent by the January session and 55 percent by March, according to futures data compiled by Bloomberg. The odds for a boost by the October meeting were 18 percent on Oct. 1. The calculations are based on the assumption that the effective fed funds rate will average 0.375 percent after liftoff, versus the current target range of zero to 0.25 percent.
The central bank needs to amend the way traders view the path for interest rates, El-Erian said.
“The critical issue for the Fed is not when it moves first;it is the journey,” he said. Between now and December, it has to get the market to realize “that this will be the loosest tightening in the modern history of central banks,” El-Erian said.