Fed kept Trump rhetoric on rate cuts away from its policy decisions and guided for status quo on rates going forward. The markets will look at data, corporate earnings and other geopolitical factors for direction.
The Federal Reserve in its recent policy meeting left its key benchmark rate unchanged, In a unanimous vote of 10 – 0 voting Federal Reserve members decided to leave the target range for benchmark federal funds rates at 2.25% – 2.5%.
US Equity indices fell after the policy outcome, as markets were expecting a rate cut guidance. However, as unemployment is hovering at a 50-year low, and the US economy grew at a stronger than anticipated 3.2% during the first three months of this year, the Fed was non-committal.
Federal Reserve signaled it is unlikely to either raise or cut-rates in the upcoming policy amid signs of strong economic data and low inflationary pressures. In the press conference, Fed Chairman Jerome Powell declined to hint of any potential coming rate cut. He suggested, that the current too-low inflation readings may be transitory or might not be fully capturing real-world price increases and the committee is comfortable with the current policy stance.
Fed noted inflation for items other than food and energy have declined and are running below 2%, growth of household spending and business fixed investment slowed in the first quarter but policymakers reiterated that the Fed would continue to be “patient” as it determines the future path of interest rates.
Weekly Global Bond Market Analysis
US 10-year benchmark bond yields fell by 6 bps, as Germany economic data dented market confidence. German Ifo Business Climate Index for April fell 0.5 points to 99.2, below market estimate of 99.7. The decline in the Ifo index suggest the German economy momentum is getting weak. On US economic data front, number of Americans filing for unemployment benefits rose by the most in 19 months last week. Initial claims for state unemployment jumped 37,000 to a seasonally adjusted 230,000 for the week ended April 20. Market is also paying attention to reports that Japanese insurers are raising their purchases of US Treasurys and corporate bonds. Japan Post Insurance Co., one of the biggest insurers in the world, said it planned to increase its holdings of U.S. corporate debt for 2019, as domestic Japanese yields remained near ultralow levels.
Germany 10-year benchmark bond yields fell by 4 bps, German 10-year bond yield touched a two-week low and went back to negative territory after Ifo sentiment index fell short of expectations.
Italy 10-year benchmark bond yields fell by 3 bps after credit rating agency S&P affirmed Italy BBB credit rating, two notches above junk, with a negative outlook. S&P said it would consider lowering Italy’s rating within 24 months if it didn’t rein in its debt to GDP ratio, or if there is deterioration in external financial conditions for Italy government and its banks.
Portugal 10-year benchmark bond yields fell by 6 bps, Spain 10-year benchmark bond yields fell by 3 bps.
Japan 10 -year benchmark bond yields fell 1 bps after BoJ said it expected to keep extremely low-interest rates until at least the spring of 2020. BoJ kept its interest rate unchanged, It maintained its target for 10-year Japanese government bond yields at around zero and its short-term deposit rate at minus 0.1%
Emerging economies 10-year benchmark bond yields were mixed last week.
Australia 10-year benchmark bond yields fell by 14 bps to 3-week lows after quarterly Australian inflation figure missed estimates, CPI rose 0.3% quarter-on-quarter in Q1, narrowly missing the estimated rise of 0.4%. The market expects weaker than expected CPI to bolster the chance of rate cuts in RBA upcoming policy meet.
Indonesia 10-year benchmark bond yields rose by 19 bps, South Africa 10-year benchmark bond yields rose by 11 bps, China 10-year benchmark bond yields rose by 2 bps. Russia 10-year benchmark bond yields rose by 2 bps, Brazil 10-year benchmark bond yields rose by 2 bps.
US benchmark Junk bond yields rose by 1 bps to 6.13%, Euro benchmark Junk bond yields rose by 10 bps to 3.24%.
