A fixed income chart guide to today’s FOMC meeting

A fixed income chart guide to today’s FOMC meeting

Althea Spinozzi

Senior Fixed Income Strategist

Summary:  Find a chart pack to guide you through the major bond market's themes as the FOMC meeting unfolds.

Ahead of the FOMC meeting, the 10-year US Treasury yield has broken above 1.65%, entering a fast area. Many have pointed out that at this level, the selloff in government bonds will intensify as it is most likely to provoke another convexity event within the Mortgage-Backed Securities space, which will push investors to sell Treasuries to decrease their portfolio’s duration. We believe that if the Federal Reserve disappoints, 10-year yields will quickly rise to test a new resistance level at 1.75%.
Source: Bloomberg and Saxo Group.

Depending on the Federal Reserve’ economy outlook, Breakeven rates can be sensitive driving US Treasury yields higher. 

The 5-year Breakeven rate continues to rise. If it breaks above 2.72%, it will record the highest inflation expectations since 2006, weighting on the curve’s belly. We might see another spike in 2s,10s,30s butterfly as it catches up with inflation expectations.

Source: Bloomberg and Saxo Group.
However, the 2s,10s,30s butterfly is flat on the day. The 5s,10s,30s butterfly rose by 4bps, becoming the cheapest since 2014 as 10-year yields rose faster than other maturities. The move indicates troubles ahead in the corporate space as these securities’ price is set according to this part of the US yield curve. 
Source: Bloomberg and Saxo Group.
In the coming days, you should pay attention to what happens in the corporate bond space. Since December, the yield offered by these securities is below the 10-year Breakeven rate, meaning that inflation will erode all the yield offered by these securities. As Treasuries continue to tumble, bearish sentiment will most like provoke a duration even that would see the US investment corporate space repricing. The US junk space might prove resilient as the duration in high-yield corporate bonds is less than half compared to that of investment-grade corporates (3.5 years in HY versus an average of 8 years in IG)
Source: Bloomberg and Saxo Group.
Ultimately the question is whether volatility will leak from the bond to the stock market. 
Source: Bloomberg and Saxo Group.

Finally, let’s not forget that tomorrow the US Treasury will issue 10 year TIPS and it will be important to understand whether investors seek protection against it after the FOMC meeting.

Source: Bloomberg and Saxo Group.

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
- Full disclaimer (https://www.home.saxo/en-mena/legal/disclaimer/saxo-disclaimer)

Due to coronavirus controls, we are not able to meet with clients in our reception at present, unless by appointment in exceptional circumstances. We remain at your service on the phone and email details below. Thank you for your understanding.

Please expect very long waiting times on the line when calling us, we advise you to send us an email instead.

Contact Saxo

Select region


Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.