Market Flustered By Interest Rate Spike

Anxiety over when the Federal Reserve will begin tapering its bond purchases and the subsequent spike in interest rates could keep markets choppy Tuesday.

“At some point, [the Fed] has to start to taper and that’s what the market is preparing itself for…whether it’s in September or October,” said Kenny Polcari, director at O’Neil Securities.

Benchmark 10-year note yields climbed as high as 2.90 percent Monday, the highest level since July 2011 and up from nearly 2.60 percent a week ago. Yields have gained more than a full percentage point since early May when Fed Chairman Ben Bernanke first hinted the central bank may scale back its asset purchases.

“This market’s been toggling and waiting for direction—it’s a scenario in which it’s not just economic data or geopolitical data, but still central bank driven,” said Quincy Krosby, market strategist at Prudential Financial. “We’ve always said the road toward interest rate normalization is going to be difficult and dotted by detours and obstacles.”

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