Pimco at odds with Goldman on Yellen as September rate bets rise

(Bloomberg) – Federal Reserve Chair Janet Yellen’s speech Friday was hawkish enough for Goldman Sachs Group Inc. to boost the odds of a September interest-rate increase, while Pacific Investment Management Co. said there was nothing of note in her remarks.

Bond traders agree with Goldman Sachs, with the market-implied probability of action next month rising after Yellen said the case for tightening policy has strengthened. The bank, one of the Treasury market’s 23 primary dealers, now puts the “subjective odds” of a move in September at 40 percent from 30 percent previously, economists led by Jan Hatzius wrote in a note.

Fed funds futures indicate a 42 percent chance that the central bank will raise rates next month, up from 22 percent Aug. 19 and zero in late June after the U.K. voted to leave the European Union. The odds of an increase by December have risen above 60 percent from a low of 8 percent reached June 27, according to futures data compiled by Bloomberg. The calculation assumes the effective fed funds rate will average 0.625 percent after the central bank’s next increase.

U.S. economy watchers are turning their attention to August payrolls figures later this week for signs of whether there’s continued strength in the jobs market.

“I’m sure the Jackson Hole setting is lovely for this annual conference, but the Chair did not want to make any real news, and she succeeded,”  Richard Clarida, a global strategic adviser at Newport Beach, California-based Pimco, wrote in a client note. Yellen’s remarks didn’t shed any light on “the near-term path for the normalization of interest rates, and the Fed’s longer-run inflation-targeting framework,” he said.

Treasury Yields

The two-year Treasury note yield was little changed at 0.83 percent as of 9:25 a.m. in New York, according to Bloomberg Bond Trader data. The price of the 0.75 percent security due in August 2018 was 99 26/32. The yield touched 0.85 percent, the highest since June 3.