For fixed-income markets, the waning weeks of 2013 remain a game of watching incoming economic data and waiting on the Federal Reserve. After bond prices did another yo-yo move last week following the release of the latest Fed policy committee meeting minutes, market expectations remain all over the map regarding when the Fed will start tapering its monthly asset-purchase program. For example, here’s JP Morgan on Friday:And Bank of America/Merrill Lynch via MoneyBeat:
We still expect a January taper, but Fed commentary and the October FOMC minutes suggest an increased risk of a December move. With the Fed looking for ways to reinforce forward guidance, we have lowered our forecast for front-end Treasury yields and 3-month Libor in 2014.And here’s RBS today:
Based on the recent FOMC meeting minutes, some market participants appear expect a December taper that is paired with enhanced forward guidance....MORE
Inflation Enters the Fed Taper Equation
Even if the U.S. economy and jobs market continue to improve, a low inflation environment could keep the Fed’s bond-buying program going to end of the first-quarter, according to Bank of America Merrill Lynch.
The firm now sees the Fed announcing a first reduction to its bond-buying program in March, from January as it forecast last month. Market expectations have broadly centered around early 2014.
BofA Merrill Lynch’s decision to push out its tapering timetable comes even as it remains upbeat about 2014 growth, with a 2.6% forecast on real GDP....MORE