Bond Market Update

25 might be a way to go

• The FOMC Minutes noted that, "Some participants noted that there had been a plausible case for a 25 basis point rate cut at the previous meeting and that data over the intermeeting period had provided further evidence that inflation was on a sustainable path toward 2 percent while the labor market continued to cool. However, noting that inflation was still somewhat elevated while economic growth remained solid and unemployment remained low, some participants observed that they would have preferred a 25 basis point reduction of the target range at this meeting, and a few others indicated that they could have supported such a decision. Several participants noted that a 25 basis point reduction would be in line with a gradual path of policy normalization that would allow policymakers time to assess the degree of policy restrictiveness as the economy evolved. A few participants also added that a 25 basis point move could signal a more predictable path of policy normalization."
• Interesting insight from the minutes, yet the effect of the indication that more than one participant saw a plausible case for a 25-basis points cut has been muted by interim developments: (1) Fed Chair Powel suggesting that two more 25-basis point cuts before the end of the year are likely if the economy evolves as expected and (2) the September employment report showing an acceleration in hiring activity. Both substantially reduced the prospect of the Fed cutting rates in 50-basis point strokes at either of the last two FOMC meetings this year.
• Yield check:
  • 2-yr: +3 bps to 4.01%
  • 3-yr: +3 bps to 3.92%
  • 5-yr: +5 bps to 3.91%
  • 10-yr: +4 bps to 4.07%
  • 30-yr: +3 bps to 4.35%