This week will be a busy one for the markets, particularly the bond market. The U.S. presidential election will hopefully be concluded with a clear winner, but the Treasury funding announcements, Federal Reserve (Fed) meeting and Bureau of Labor Statistics employment report all hold key information for the path of interest rates going forward. After last week’s eye-popping third quarter gross domestic product number of 33.1% growth, bonds will be closely watching the supply side of interest rates with the Treasury funding announcement. I expect supply to be increased materially across the yield curve to fund ever-growing deficits and the need for more stimulus in the coming months.
During its meeting, the Fed will likely continue to refine its thoughts on the pace of economic activity and reaffirm the tools at its disposal to assist the economic recovery. The week concludes with the October jobs report. The expectation is for 580,000 new jobs to be added. This will likely continue the deceleration in the number of jobs that have returned since the significant loss at the beginning of the year.
I expect bonds to struggle to find a clear direction, as factors pushing rates higher like supply are offset by the reality that the Fed has significant tools to manage the path of rates. Furthermore, the potential for a slowing economy due to an uptick in coronavirus cases could force a pullback in economic activity.
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