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Bond Market Shows Traders Aren’t Ready for Evans’s Three Hikes 

October 25, 2016

Kevin Buckland & Wes Goodman, Bloomberg

Federal Reserve official Charles Evans has added his voice to forecasts for up to three interest-rate increases by the end of 2017. The bond market shows traders aren’t ready for that many.

Chicago Fed President Evans joined San Francisco counterpart John Williams, who last week said he supported one rate move this year and “a few” the next. Pacific Investment Management Co. said this month U.S. rates may rise two or three times over the period. Futures contracts show traders are banking on one move, with the odds of a second one being no more than a coin flip.

“Yields already reflect one rate hike,” said Kim Youngsung, head of overseas investment in Seoul at South Korea’s Government Employees Pension Service, which has $13 billion in assets. “If you expect two hikes next year, yields will rise. We’re not sure about next year. That totally depends on the data.”

The benchmark Treasury 10-year note yield rose one basis point, or 0.01 percentage point, to 1.78 percent as of 9:32 a.m. in New York, according to Bloomberg Bond Trader data. That compares with a record low of 1.32 percent set in July. The 1.5 percent security due in August 2026 fell 3/32, or $0.94 per $1,000 face amount, to 97 17/32. Read more

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