To see the number
of hikes or cuts the
market expects by
the end of 2019,
type “DEC2019” here
between the ticker
and Index and
press <GO>.The cut in September
brings market
expectations to just
one more 25-basis-
point reduction by
the end of the year.When the Fed
trimmed the fed
funds target rate in
July (lower panel),
expectations shifted
to one more cut this
year. That quickly
changed, however,
as trading priced
in two or more cuts.Fig. 1 To chart the number of estimated moves priced in for the U.S.,
run {US0ANM Index GP <GO>}.US0ANM and Index in the ticker box and hit <GO> (FIG. 1).
The chart shows that in September 2018, futures priced in
three to four rate hikes by the end of 2019. After the Fed raised rates
on Sept. 26 and Dec. 18, 2018, expectations changed as global
growth slowed. At the end of 2018, futures prices indicated rates
would hold steady. Then came the May FOMC meeting, when Powell
hinted the committee’s next move could be a cut. Traders adjusted
and priced in a 25-basis-point cut. In June and July, trading implied
as many as three cuts.
In addition to tracking fed funds futures, WIRP tickers also
let you analyze expectations implied by trading in overnight index
swaps in seven countries and the euro zone. For a table of available
tickers—which track the probability of a move implied by prices of
these instruments, the number of moves, and what the forward
rate is expected to be—run {WIRP <GO>} and click the help icon
at the upper right corner of the screen. Select Launch Help Page,
click on Calculations, and then on Current Tickers.Rates
These Tickers Show What the Market
Is Betting the Fed Will Do
By DEIRDRE FRETZ
“MIDCYCLE ADJUSTMENT.” That was how U.S. Federal Reserve Chair
Jerome Powell on July 31 characterized the Fed’s first rate cut since
the financial crisis. “It’s not the beginning of a long series of rate
cuts,” he added.
Fed funds futures traders accepted that statement at face
value. Futures priced in just one more rate cut before the end of 2019.
A day later, though, they changed their mind and priced in two cuts.
Bloomberg recently drew on the World Interest Rate Proba-
bility (WIRP) function, which calculates probabilities of benchmark
rate changes, to create a series of WIRP tickers. You can use them
to visualize changing expectations for the next Federal Open Market
Committee meeting or to measure expectations for cumulative
changes by specific dates in the future.
To see how expectations for U.S. rates have evolved over the
past year, type “WIRP number of moves U.S. futures” and select
US0ANM Index. Then select GP - Line Chart.
After the Fed’s second cut, on Sept. 18, the chart showed
futures pricing in about half of a 25-basis-point cut at the next
FOMC meeting. To see how expectations for the number of cuts
by December have changed, insert “DEC2019” between
Fretz is a Functions for the Market editor at Bloomberg News
in New York.<GO> INSIDE THE TERMINAL 35