U.S. bond yields may have risen last week, but bond traders are not pleased with the IMF’s posture to put off interest rate hikes till 2016.
Christine Lagarde, managing director of the International Monetary Fund, has advised the Federal Reserve that with economic reports showing inflation picking up faster than anticipated, there is no need to make any moves at the moment. A jobs report showed American payrolls in May climbed the most in five months, up from a previous 46 percent estimate.
Bond traders are hopeful that the U.S. central bank will not go along with the IMF suggestion. As a sign of their displeasure they dumped Treasuries on Friday, sending yields on 10-year notes to the highest since October.
According to John Silvia, chief economist at Wells Fargo & Co., “Even if the Fed does not move, credit markets already have moved.”
Too Early to Make a Move
However, “it may be too early to tell just how long the selloff in government bonds will last following ‘unprecedented’ market volatility,” Goldman Sachs International's Vice Chairman Michael Sherwood told one reporter Monday.
"We went from a period where rates were a one-way bet down when the (European Central Bank's) QE (quantitative easing) program was announced; we had a situation where 30-40 percent of government bonds had negative yields. That is starting to reverse itself a little bit, but it's too early to tell," Sherwood said.
Bond traders continue to voice doubt as to whether or not the IMF recommendation will be taken seriously. Olivier Blanchard, the IMF’s chief economist, pulled back somewhat. Speaking at a conference in New York, he said, “We may turn out to be wrong. We may turn out to be right. But that’s the kind of discussion that we have.”