Save Your Portfolio From Katrina and the Fed

The bond market has decided that Hurricane Katrina will soon put an end to the Federal Reserve's interest rate hikes.

Treasury bonds moved sharply higher in price on Wednesday, Sept. 1, tacking another 0.06% onto recent increases. The yield curve has inverted, with two-year Treasury notes yielding more than three-year notes, a sure sign that bond traders think that interest rates are headed down. The yield on a 10-year Treasury note is now 4%, just 0.3 percentage points higher than the yield on a two-year note.

And, finally, the fed funds futures market, where traders place their bets on the direction of interest rates, is now pricing in a 76% chance that the Federal Reserve will raise interest rates again when it meets on Sept. 20. But that's down from a 90% chance on Aug. 31 and the 100% odds reflected in prices during most of August. The odds for another rate increase in November have tumbled to 21% from 52%. ...