The potential headwind for bonds is higher interest that may result from the Federal Reserve increasing the Fed Funds rate as well as potential inflation due to the level of monetary support provided by the U.S. Government. The Argus Leading Fed Funds Index reported its second consecutive monthly gain in June.
In June, the ALFFI climbed five points to 52.45 from 47.48 in May — which itself was a 10 point+ increase from April. This is the highest reading since last October (when we saw 63.15). Four of the six ALFFI’s components registered gains last month, with the core intermediate producer price index and the CRB posting declines. This index is designed to predict changes in the direction of the Federal Reserve’s target rate. It certainly seems as if the next move will be to the upside.