MORNING BID-Where will it end?

BY Reuters | TREASURY | 01/11/22 03:06 AM EST

A look at the day ahead from Sujata Rao.

Did retail investors save the day? The Nasdaq, which fell more than 2% at one point on Monday managed to close in positive territory, as bargain hunters swept in.

It's a scenario seen repeatedly in the past year and often attributed to amateur traders. Buy buyside analysts were also out in force with buy-the-dip advice, noting that markets were well on their way to pricing the likelihood of four U.S. rate hikes this year, making further hawkish surprises harder.

Possibly, that's kept the dollar flatlining this month, well off 16-month highs touched at the end of November, while Treasury yields on Monday snapped a six-session rising streak.

As we write, Wall Street futures appear undecided on direction though European shares are opening firmer. Bar any fresh news, markets will likely wait to see if Wednesday's U.S. consumer inflation print indeed breaches 7%, as anticipated.

In a reminder of global inflation pressures, a survey showed Japanese households' inflation expectations at a more than two-year high.

Policymakers seem calmly confident though they can avert runaway inflation; pre-released comments show Federal Reserve Chair Jerome Powell will tell Congress the bank would "prevent higher inflation from becoming entrenched".

And while euro area inflation is running at 5%, ECB chief economist Philip Lane says he does not see prices above the 2% target in the medium term.

Markets for now remain conviced that the interest rate peak, the so-called terminal rate, will be lower than in previous cycles.

Goldman Sachs is among those warning that U.S. terminal rate pricing is too low. But with the Nasdaq market cap down more than $1.5 trillion this year, it may be bargain-hunting time.

Key developments that should provide more direction to markets on Tuesday: -"Grand Theft Auto" video game maker Take-Two Interactive to buy Zynga for $11 billion - Britons splurged on eating at home pre-Xmas, shunned restaurants - ECB President Christine Lagarde to speak -Fed speakers: Chairman Jerome Powell; Kansas City President Esther George -U.S. 3-year note auction (Reporting by Sujata Rao; editing by Dhara Ranasinghe)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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