Bonds Run Into GDP Bump in the Road

While the stock market was awash in green, Treasuries limped along in the wake of this morning's better-than-expected Gross Domestic Product report. Today's GDP data deflated worries about a recession and reduced hopes for several more interest-rate reductions by the Federal Reserve .

To be certain, the bond market isn't abandoning all hope rates will be cut again. It just doesn't reflect the belief Alan Greenspan and gang will be all that aggressive.

Indeed, the latest pricing of the fed funds futures -- a good proxy of where the bond market expects interest rates to move -- indicates the market expects the Fed to ease short-term interest rates by 25 basis points to 4.25% when it next meets on May 15. The July fed funds futures contract also prices a 100% chance of the Fed further cutting rates by another 25 basis points to 4% by the beginning of the summer. The Fed meets for two days beginning July 26. But it all stops there. The fed fund futures indicate the market does not currently expect rate cuts after July. ...