Fed tapering, a government shutdown and last minute debt-ceiling deal have rocked the bond market in recent weeks. John Lothian News’ editor-in-chief Jim Kharouf sat down with David Robin, managing director of Newedge to talk about what’s next for the bond market and interest rate futures volumes.

In Robin’s view, we are not likely to see another Washington fiasco as we did back in October.

“The significance of the debate itself and the process the marketplace and the political theater underwent, has sort of got the marketplace in a situation where we know that for any extended period of time, the Fed is the only game in town,” Robin says.

There was a failed attempt at a grand bargain on a 10-year fiscal plan in 2011, but Robin does not see the possibility of another budget deal between the White House and Republicans coming through. Another debt-ceiling crisis is less likely in February when it comes up again. And thus, Robin believes that the Fed will continue to be the strongest player in the markets from Washington.  

With all eyes on the Fed, bond market participants are focused heavily on its next moves. Tapering, or a scaling back on the quantitative easing program by the Fed, will be the next fixation for the market, he says. If and when the Fed does begin tapering, Robin believes that could stimulate more futures trading as speculators and hedgers return to more active and volatile markets.

In the meantime, Robin believes the market is resorting back to a more “buy and hold” mentality, at least until next year when Fed tapering seems likely.  

“It’s going to be a moderate volume, low volatility environment, probably until the beginning of the second quarter of 2014, when the Fed starts to ramp things up again.”

CME Group reported that its October volume in its interest rate futures complex rose 20 percent from a year earlier with an average daily volume of 4.9 million contracts.

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