Attention is shifting away from the question of how much higher interest rates may go and toward how long it will be before Federal Reserve officials start...
Growing acceptance of the higher-for-longer theme for U.S. interest rates is playing out in a variety of ways within financial markets, including trading on the secured overnight financing rate known as SOFR.
SOFR is the successor to the London interbank offered rate, known as LIBOR, which was the subject of a scandal a decade ago that involved allegations of collusion by traders. LIBOR was phased out to make way for SOFR, which traders use to telegraph their expectations for Fed policy. “For markets, what really matters is the path itself — not just how far the Fed goes with rates, but how long it stays there before getting to the first cut,” TD’s Goldberg said via phone on Friday. “The longer the Fed leaves rates at restrictive levels, the more that weighs on the economy and pushes valuations lower.”
During a week when investors have been rattled by a selloff in long-dated Treasurys— which sent 10- and 30-year yields to their highest closing levels since 2007 and 2011 on Thursday — the expectations of fed funds futures’ traders for the next few Fed meetings remained little changed. They still see a roughly 90% chance of no action by the Fed in September, little changed from a week ago, according to the CME FedWatch Tool.
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