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Markets price more July Fed hikes, but TD Securities sees it unlikely

TD Securities says current July FOMC pricing for a hike has swung from 2 basis points to 8 basis points, calling it excessive.

Reported · Written up by our desk · Central Banks

TD Securities strategists Gennadiy Goldberg and Molly Brooks said market pricing for potential Fed rate hikes has risen alongside higher oil prices and US-Iran tensions, but they judge a July move as unlikely.

They argue that while markets have been less worried about energy feeding into core inflation after weaker CPI and PPI readings, prolonged energy shocks could eventually push markets to expect Fed reaction.

In their view, pricing for a July hike looks extreme ahead of next week’s FOMC decision, noting it has moved from about 2 basis points to 8 basis points, and they maintain a receive July OIS position.

They also point to the recent range in 10-year Treasury yields, saying rates are hovering around 4.66% to 4.69%, with next resistance at roughly 4.80% to 4.81% and then near 5.00% if yields break higher.

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