U.S. bond yields suggest investors anticipate the Federal Reserve will announce a reduction in asset purchases at its September policy meeting, according to JPMorgan Chase & Co.’s Heather Loomis.
Tapering “does appear to be baked in,” with as much as 80% of the market expecting it, Loomis, director of fixed income in San Francisco for JPMorgan Private Bank, said during a television interview.
Fed Chairman Ben Bernanke “has effectively said tapering will being and end within a year,” said Loomis, who helps oversee $909 billion in assets. “The market is looking at 2014 as the start of rates hikes.”
Yields on 10-year notes, the benchmark for everything from home mortgages to car loans, have risen about 45 basis points to 2.64% since June 19, when Bernanke said policy makers may begin reducing asset purchases this year and end them in 2014. His comments were followed by two U.S. employment reports that showed higher-than-forecast job gains.
The Fed is buying $85 billion of Treasuries and mortgage bonds every month to put downward pressure on borrowing costs. Policy makers have also kept their target rate for overnight loans between banks at zero to 0.25% since 2008 to support the economy.
“Over the longer term, interest rates are moving higher,” Loomis said. “If you see changes in yields as a result of true healing and true growth in both GDP and employment within the economy,” both Treasury yields and the Standard & Poor’s 500 Index “can move up in tandem,” she said.
