Outlook for Fed easing increases amid virus concerns

Traders are boosting the odds that the Fed will ease monetary policy by the end of the year amid increased concern over the spread of the coronavirus, Bloomberg reports.

Implied rates on fed funds futures that expire through August 2021 slid by as much as 9 basis points with a quarter-point cut priced in by the end of October; a few weeks ago, the lower rate wasn’t expected until early 2021.

David Robin, a strategist at TJM Institutional Securities Services, observes a “shift as ‘risk off’ superceded ‘policy path pricing’ as the dominant pricing driver.” He wrote in a note: “This particular ‘risk-off event’ is extremely difficult to quantify, both subjectively and objectively.”

The central bank’s monetary policy-setting arm meets on Tuesday and Wednesday; the FOMC is expected to keep the target rate range unchanged.

The Fed is also expected to adjust the interest rate on excess reserves (IOER) and the rate on its reverse repo program (RRP) 5 basis points higher to help maintain the funds rate within its target range.

2-year Treasury yield falls 5 basis points to 1.44%; 10-year yield sinks almost 8 bps to 1.61%.

ETFs: TLT, TBT, TMV, EDV, TMF, VGLT

https://seekingalpha.com/news/3534726-outlook-for-fed-easing-increases-amid-virus-concerns