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Treasuries rose and yields fell in the wake of the Federal Reserve’s as-expected decision to raise interest rates – and yields continued that downward move in Asian trade.
Market attention centred on what it considered to be a dovish hike, following the Fed’s signalling that it was moving to a more balanced viewpoint, where risks to the downside were not considered necessarily greater than those of rising inflation – meaning it could be comfortable with the idea inflation might overshoot its target at some point.
Michael Feroli, chief US economist for JPMorgan said:
The overall message is one of a Chair who hasn’t changed her dovish feathers, and a Committee that hasn’t deviated from their gradualist intentions.
From 2.54 per cent just after the Fed decision – and 2.58 per cent earlier in the US day – the 10-year note yielded 2.489 per cent as the Asian trading day got fully underway, its lowest level in more than a week.
The two-year yield dropped from 2.40 per cent ahead of the Fed news to 1.299 per cent by mid-morning in Asia.
Richard Clarida, global strategic advisor at PIMCO, the bond fund giant said:
Until today, Fed statements and comments from key officials had been preoccupied with risk management. With today’s interest rate hike and confirmation of a gradual but regular pace of hikes, the Fed is conveying a level of confidence in the economy as well as reinforcing that the 2 per cent inflation target is symmetric – that is, inflation overshoots are neither more nor less tolerable than undershoots.