From the ADSS Research Team
It's a big week for the bond market with the Federal Reserve's latest meeting minutes set for release Thursday afternoon (1800 GMT) instead of Wednesday due to the Independence Day. We believe that the meeting minutes could be a particularly pivotal event for Treasuries and the dollar going forward.
First, rates are rising rather quickly. As the benchmark 10-year Treasury yield inches ever closer to 3 percent, the more Fed policy-sensitive 2-year Treasury yield hit its highest level in nearly a decade. At the same time, a massive Treasury auction last Tuesday showed weak demand for some short-dated notes.
We're expecting a hawkish tone out of the FOMC's meeting minutes
on Thursday that could push bond yields higher, as rates are already hitting
multiyear highs. If the Federal Open Market Committee meeting minutes are
unambiguously hawkish, rates could jump further.
Stocks have managed to recover most of their losses from earlier this month,
but investors may begin worrying about crowding in the bond market as yields
begin competing with stocks which may lead to another drop and add the bearish
momentum. Dow Jones is currently hovering above the key 24,000 points' support,
a fresh push lower will threaten this level and a break below exposes a move
towards the 23,400 points' area which is a good 600 points' drop.
Furthermore, there is a good chance that markets will push US dollar higher.
The US currency has been gaining in recent weeks on the back of the Trump-led
trade war but a confirmation of a hawkish stance from the Fed could extend the
rally for the greenback. This combined with a positive NFP reading the day
after would reinvigorate the momentum behind the dollar and send the Dollar
Index above the key 95.00 figure.
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This article was written by the ADSS Research Team
