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December Fed Rate-Hike Odds Slide Below 70% on FBI Clinton Probe

By Yun Li, Bloomberg, Andrea Wong, Bloomberg

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Bond traders pared wagers on tighter U.S. monetary policy after the Federal Bureau of Investigation said it’s reopening its inquiry into Hillary Clinton’s use of private e-mail while secretary of state.

Treasury two-year securities gained as futures data show traders see about a 69 percent probability of a Federal Reserve interest-rate hike by December, down from a 74 percent chance seen earlier Friday. The calculations assume that the effective fed funds rate will average 0.625 percent after the next increase. The FBI’s announcement comes less than two weeks before the U.S. presidential election.

“This is a small glimpse into what the bond market thinks is going to happen if Trump is elected,” said Thomas Roth, senior Treasury trader in New York at MUFG Securities Americas Inc. “The market has made it clear that they think a Trump victory would be bad for stocks and would create more uncertainty in the economy. And therefore, it might hold the Fed off from raising rates.”

Yields on U.S. two-year notes, the coupon maturity most sensitive to Fed policy expectations, fell three basis points, or 0.03 percentage point, to 0.86 percent as of 2:21 p.m. in New York, according to Bloomberg Bond Trader data. 

“Hillary is looked at as being the known commodity and Trump is considered to be the wild card, so from that standpoint it makes people less willing to take risks’’ if her lead slips, said Ward McCarthy, chief financial economist at Jefferies LLC, one of 23 primary dealers that trade with the Fed.

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