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Bond Yields Surge to Start 2022, What's Ahead?

Bond yields are ripping higher on the first day of trading in 2022. The market forecast is for the first hike in May.
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Target Rate Probabilities for May - 2022-01-03

Bond Yields 1:00 PM Central 

  • 3-Month: 0.63% + 0.01 PP
  • 6-Month: 0.21% +0.02
  • 1-Year: 0.39% +0.01 PP
  • 2-Year: 0.78% +0.05 PP
  • 3-Year: 1.02% +0.07 PP
  • 5-Year: 1.36% +0.11 PP 
  • 7-Year: 1.56% +0.13 PP
  • 10-Year: 1.63% + 0.13 PP
  • 30-Year: 2.02% +0.13 PP

That represents significant one-day steepening of the curve. But there is still no expectation of a rate hike at the March 16 FOMC meeting.

The Rate Hike Odds Charts are from CME Fedwatch. They are based on Fed Fund Futures trading. 

May 4 Rate Hike Odds

Market participants believe May 4 is when the first hike will occur and the probabilities for June and later are skewed to the upside. 

June 15 Rate Hike Odds

Target Rate Probabilities for June - 2022-01-03

Market participants have penciled in a second consecutive rate hike for June with a combined net chance of under two hikes rated only 44.9%. 

September 21 Rate Hike Odds

Target Rate Probabilities for September - 2022-01-03

At the September meeting, the market does not quite forecast the third hike but the skew is heavily to the upside.

There is also a meeting on November 2 but let's skip to the end of the year forecast. 

December 14 Rate Hike Odds


Target Rate Probabilities for December - 2022-01-03

I find the prospect of 7 rate hikes in 2022 more than a bit amusing.  Here's a good way of looking at things.

  • 0 to 2 hikes: 33.8%
  • 3 hikes: 30.2% 
  • 4 or more hikes: 36.0%

The median projection is now a bit more than 3 hikes this year. 4 and 2 rate hikes are at nearly equal odds, but 5, 6, an 7 hikes rated a combined 13% vs 0 to 1 hike at a combined 10.8%

The change in rate hike odds today reflect the surge in yields that also happened today.

There is No Predictive Power in Fed Projections

If you think the Fed, Fed Fund futures, or current rates predict anything, you may wish to reconsider.

For discussion, please see There is No Predictive Power in Fed Projections.

I highly doubt the Fed gets in 3 hikes this year but if it does, then look for an inverted yield curve, not further hike projections in 2023.

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