Very few rates traders are convinced that next week is the start of liftoff for Fed Funds rates.
Here’s Bank of America Merrill Lynch’s rates strategist Shyam Rajan on the disbelief of those who put their money where their mouths are:
Much discussed, little priced in
The rates market remains remarkably unconvinced of a September hike despite the recent bounce in risk assets. At current levels, the market is pricing in a 30% chance of a September hike, one full hike this year and about 2.5hikes in 2016. Looking at history, the first Eurodollar contract was pricing in a 100% chance of a hike one week before the June 1999 meetings, while in 2004 a 100% chance of two hikes was priced in one week before (September 2004 contract had two live meetings ahead- June and August ). So although, we have been discussing the first hike for a long time, this is the least convinced the market has been about it for a while.
The myth of a dovish hike
Bank of America Merrill Lynch – September 9th 2015