Bond yields over the past couple of days hit a five-and-a-half-month high. Paul McCulley of PIMCO attributes the jump to the market’s unwinding expectations of a Fed easing.“It was dressed up for an easing party, and the band is not going to show,” he said. McCulley and two other analysts were on “Power Lunch” to give their take on which direction rates might go throughout the coming year.
John Ryding agrees. He’s the chief U.S. economist at Bear Stearns. He says the bond market had priced in two rate cuts from the Fed in the first half of the year into yield prices, but now those easings are being taken out.
“We’re taking out the earnings because we’ve had seven weeks of stronger-than-expected data – just about every economic report,” Ryding says. “I think next week’s data on GDP and jobs will be relatively strong and we could take the rest of the rate cuts out and maybe at some point start thinking about the potential for rate hikes in 2007.”