Read this article in The Wall Street Journal yesterday (Sept. 15, 2015) and I agree with its overall assessment – what’s going to happen IF the Fed raises rates this week?  Probably not much.

Investors Look Beyond Fed Meeting, See Low Rates

No matter what happens this week, slow global growth is expected to be key factor for long term

Investors may be mixed on what the Federal Reserve will do with interest rates this week. But they are more aligned on what they expect to happen next with rates: not much.

Many investors are looking beyond Thursday, when the Fed may raise the short-term benchmark interest rate for the first time in nearly a decade. Regardless of the central bank’s decision, many investors expect anemic global growth will keep rates subdued in the long term.

“The first rate hike should matter to nobody so long as markets are reassured that further hikes will only be very gradual in nature,” said Mark Dowding, senior portfolio manager at BlueBay Asset Management, which managed $60 billion as of end-July. “The financial markets may do better if they get the hike out of the way and get the monkey off their back.”

Mr. Dowding has added to his holdings of highly rated corporate debt in recent weeks, signaling confidence that any further increase in rates will be slow and shallow.

With the much anticipated rate decision finally close at hand, stocks rose Tuesday and bond prices fell, suggesting bond investors were protecting themselves in case of a Fed increase.

The Dow Jones Industrial Average on Tuesday rose 1.4%, or 228.89 points, to 16599.85 on news of resilient U.S. retail sales and a rush to close bearish bets ahead of the Fed meeting, traders said.

The yield on the 10-year Treasury note rose to 2.281%, a nearly two-month high. The two-year yield hit a four-year high. That move wasn’t entirely surprising as the Fed’s policy has a bigger impact on short-term notes, whose yields are anchored by the policy rate. Bond prices move in the opposite direction of yields.

Some investors warn against complacency. “Rates have been at extraordinary low levels for years so a move upwards in short rates is a big deal even if well-anticipated,” said Alan Wilde, global head of fixed income at Baring Asset Management, which manages around $39 billion in assets. Mr. Wilde is sticking with bets the dollar will strengthen against the euro regardless of whether the Fed raises rates this week.

Many stock-market investors were reluctant to even hazard a guess on whether the Fed will raise rates Thursday. Nor were they inclined to predict how stocks would move either way.

While a rate increase would raise borrowing costs, which is generally negative for stocks, it would also send a positive signal about the strength of the U.S. economy.

“It’s impossible to know” what the Fed will do, said Kate Warne, investment strategist at brokerage Edward Jones. “It’s even more impossible to know what the market reaction will be. Strangely enough, markets may be surprised” no matter what happens.

About 46% of economists surveyed by The Wall Street Journal earlier this month predicted the Fed will increase rates, down from 82% in early August.

Investors and traders are even more skeptical of higher rates this month. Federal-fund futures, used to place bets on central-bank policy, on Tuesday indicated 25% odds for a rate increase on Thursday, compared with 45% a month ago.

“We do not think there are huge conviction trades being placed” given the lack of consensus, said Chris Bury, head of U.S. rates trading in New York at Jefferies LLC. “It is more prudent to wait for their decision or more clarity and invest accordingly.”

In the bond market, some investors say they are willing to make bullish bets, arguing weak growth, especially in China, is likely to continue stoking appetite for haven investments. Yields on many developed-country bonds are lower than Treasury yields, making U.S. bonds relatively attractive. Many traders say demand from pension funds will also keep a lid on Treasury yields. Pension funds need highly rated and long-term financial assets to match liabilities such as payments to future retirees.

Net bearish bets on 10-year Treasury futures totaled $2.4 billion in the week ended Sept. 8, according to TD Securities. That compares with $26 billion at the end of 2014.

Zhiwei Ren, managing director and portfolio manager at Penn Mutual Asset Management Inc., which oversees $20 billion, has pared back bets on falling bond prices and now maintains positions in line with benchmark bond indexes.

“There are no crowded bets now, since there is no consensus for the Fed’s outcome,” Mr. Ren said.

Some investors are taking advantage of the recent weakness of short-term Treasurys.  Christopher Sullivan, who oversees $2.3 billion as chief investment officer at the United Nations Federal Credit Union in New York, said he has bought Treasury debt maturing in four to five years over the past week because he expects the Fed to stand pat Thursday. That’s likely to spark a “relief rally” for shorter-dated securities, Mr. Sullivan said.

Source: The Wall Street Journal