Bond Market Momentum Firmly Bullish Ahead Of Fed Conference
Fixed income as an asset class is looking bullish as Fed Chairman Powell prepares to give a widely anticipated speech this Friday (Aug. 23). The central banker is expected to drop clues about the outlook for monetary policy for the rest of the year — clues that are forecast to favor higher bond prices and lower yields.
Going into the Jackson Hole meeting, the crowd’s anticipating that the Federal Reserve will start cutting interest rates next month. Key factors that are animating market sentiment: forecasts of slower US economic growth and ongoing disinflation. Meanwhile, the technical profiles for several key slices of fixed-income markets suggest the rally will continue, based on proxy ETFs through Tuesday’s close (Aug. 20).
Although bonds had a mixed start to the year, I wrote in February, by early June the odds looked skewed in favor of a rebound.
Fast forward to current conditions and the rally is in full bloom. For a quick recap, let’s start with a broad measure of investment-grade bonds via Vanguard Total Bond Market (BND). The fund has been in a solid uptrend since May and the persistence of the 50-day moving average holding well above its 200-day counterpart suggests that the trend remains resolutely positive.