History Says Bond Traders Are Terrible at Timing Fed Liftoff
- Tendency is to prematurely anticipate hike from zero: JPMorgan
- ‘The degree of disconnect now is simply glaring,’ analyst says
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A word of warning for all those bond traders banking on a Federal Reserve rate hike as soon as next year: Since 2008, markets have underestimated how patient officials can be in lifting borrowing costs from zero.
After the Fed first slashed rates that low during the financial crisis, hedgers and bettors in money-market derivatives established a track record of being consistently too aggressive on a first move higher, according to JPMorgan Chase & Co. In late 2008, traders already saw several hikes in the following couple years, even though it ultimately took officials until 2015 to tighten, the bank’s analysis shows.