What's Moving the Bond Market?

Doug Drabik discusses fixed income market conditions and offers insight for bond investors.

It can be easy to overthink the markets and it is human nature to try to out-guess, out-maneuver, or out-smart the average, but perhaps we can step back and simplify what seems to be occurring:

Investors are anticipating when the Fed will change monetary policy (lower interest rates). In general, the economy has remained resilient, by and large, corporate earnings have beaten estimates, and consumer spending has been unrelenting. Any data release that diverts from economic strength, earnings, or spending seems to rouse Treasury prices and thus lower rates. On the other hand, continued strength in these numbers drops Treasury prices and pushes rates higher.

The Fed is fixated on inflation. If inflation remains sticky or hints at reigniting, it seems unlikely they begin to cut rates. Conversely, if it appears inflation is dropping as desired, the likelihood of cuts increases accordingly.

These two points pretty much sum up bond market behavior for the year. The complexities of data interpretation, contrasting reads, and peripheral circumstances have created the push-and-pull effect generating volatility in the bond market. Investors, financial experts, and economists alike have been very fickle based on the latest data release. This is punctuated by the Federal Open Market Committes’s stance to remain “data dependent.”