Federal Reserve left its benchmark rate at a record low last month, stating that recent global developments “may restrain economic activity somewhat and are likely to put further downward pressure on inflation”.
Advertisement
Yields on the 10-year Treasury dipped to 2.0475 percent on Tuesday, after closing at 2.056 Monday.In longer-dated debt, while 30-year yields fell to 2.8902 from 2.898 Monday. “So data dependency does not easily justify lifting rates from the zero-bound – it might suggest the opposite”. Its previous forecasts had been 0.95 percent and 2.5 percent respectively. Treasury yields fall as prices rise and vice versa.
“The conventional view has been that a normalization of monetary policy would be led by the Federal Reserve, involve a rise in short rates and a flatter curve”, Major wrote.
San Francisco Fed President John Williams reiterated late Tuesday that he still expects the central bank to raise interest rates later this year (http://www.bloomberg.com/news/videos/2015-10-06/williams-tightening-to-be-most-gradual-in-fed-history-video-).
The yield on the benchmark 10-year German bond known as the bund, gained 3.1 basis points to 0.598%, after falling Friday to its lowest level since early June.
On Thursday morning, the Fed-funds futures market was pricing in only a 5% probability of a rate increase in October and a 38% probability for December, according to the CME Group’s FedWatch Tool.
Typically, higher interest rates make existing bonds less attractive to buyers, since they can get new notes at loftier yields.
It is another bold and out-of-consensus call from Major, one of the few analysts who correctly predicted the sharp fall in USA and other developed market bond yields a year ago.
Advertisement
And here’s a chart of the 10-year yield going back 50 years.
