Sovereign-bond yields rose to the highest in almost three months as Mohamed El-Erian said the Federal Reserve should raise interest rates.
The yield on the Bloomberg Barclays Global Aggregate Index climbed to 1.24% Tuesday, the highest since June 23. It has risen from a record low of 1.07% in July. El-Erian said traders are obsessing over the possibility of a quarter-point Fed move. The reason: they’ve come to bank on monetary policy that delivers returns “where everything goes up,” he told CNBC.
“Let’s get it over and done with,” El-Erian, the chief economic adviser at Allianz SE and a Bloomberg View columnist, said in the interview. “We’ve become so sensitive to these tiny moves because we are over-dependent on the Fed.” The timing probably won’t alter a “shallow cycle” of increases, he wrote on Twitter.
The US 10-year note yield fell one basis point, or 0.01 percentage point, to 1.72% in New York. The 1.5% security due in August 2026 rose 1/8, or $1.25 per $1,000 face amount, to 98 1/32. The yield jumped six basis points Tuesday.
The Treasury note stayed higher as a Bloomberg Politics poll showed presidential hopeful Donald Trump leading Hillary Clinton by five percentage points in the critical state of Ohio.
There’s a 22% chance the Fed will raise rates at its Sept. 20-21 meeting, down from 32% at the beginning of last week, according to futures data compiled by Bloomberg. The prospect of a December move fell to 57%, from 59%.
Fed Chair Janet Yellen said last month that the case for higher rates had strengthened, a view reiterated by Vice Chairman Stanley Fischer, who said action in September was possible. Since then, underwhelming US economic data, and this week’s dovish comments from policy maker Lael Brainard, have seen traders pare bets on an imminent increase. “The Fed has expressed different views in recent speeches,” said Rene Albrecht, a rates and derivatives analyst at DZ Bank AG in Frankfurt. “The case for a hike in September is confusing the market” but there’s “a theme that rates won’t stay low until the end of time.”
US yields may push higher as the Fed prepares investors for the next rate increase, said Enna Li, a debt investor in Taipei at Mirae Asset Global Investments Co., which oversees $93 billion.
The other big central-bank meeting next week is the Bank of Japan’s, and the nation’s longer-term bonds fell as investors weighed whether policy makers will lower rates or boost quantitative easing.
Thirty-year yields jumped as much as nine basis points to 0.608%, the highest since March.
