U.S. long-term bonds under pressure before a Federal Reserve decision


U.S. long-term government bonds held up sales on Wednesday, driving government debt prices from Germany to Canada as markets became nervous ahead of the conclusion of the latest Federal Reserve policy meeting.

The yield on the reference ten-year bill of exchange, which moves inversely from the price, gained as much as 0.05 percentage points to more than 1.67 percent in trading on Wall Street. This brought one of the world’s busiest measures of borrowing costs to the highest level since last February. Yields on 30-year bonds also increased, reaching 2.4 percent.

Shares on Wall Street were accompanied by lower bond prices, led by the technology sector. The blue S&P 500 chip opened 0.4 percent in New York City, while the technologically heavy Nasdaq Composite sank more than 1 percent.

Yield increases are noticeable because trading on U.S. government debt of $ 21 billion is usually tame before central bank policy decisions. Investors expect the Fed to upgrade its economic growth forecasts to reflect the turbocharged recovery of the U.S. economy from the pandemic.

Borrowing costs are rising, with ten-year yields rising from about 0.9 percent earlier this year as markets predicted a jump in inflation from President Joe Biden’s $ 1.9 billion stimulus and the introduction of the Covid-19 vaccine. Market measures of inflation expectations have also risen. The 10-year rate of return, which is derived from U.S. government securities protected by inflation, reached a seven-year high of 2.3 percent this week.

Fed chair Jay Powell seemed relaxed due to the sudden sudden movement of rates. But at his press conference following the Fed’s decision at 14:00 Washington, investors will be wary of clues about the first rise in interest rates after the recession and the potential cancellation of the Fed’s $ 120 billion a month program to support financial markets from March 2020. .

The Fed had a “communication challenge” about narrowing down incentives against which it would “try to refuse,” said Silvia Dall’Angelo, a senior economist at Federated Hermes. That meant bond markets were likely to remain volatile, she added, as the Fed moved on targeting average inflation, which allowed the central bank to be more tolerant of price overruns, made it difficult for investors to anticipate monetary policy.

“They did not state exactly to what extent they are overweight and how comfortable they are,” Dall’Angelo said. “From a market perspective, this brings uncertainty and instability.”

U.S. bond sales expanded to other countries on Wednesday, taking yields on the UK reference ten-year profile, up 0.05 percentage points to 0.83 per cent. The German bond equivalent rose 0.04 percentage points to minus 0.298 percent, while the Canadian ten-year yield rose 0.05 percentage points to 1.61 percent, with yields rising in Australia, Brazil and Greece.

The sharp sell-off of older government treasuries pushed a portion of the U.S. yield curve, which tracks the difference between two-year and ten-year government bond yields, to its highest point since September 2015, at 1.49 percentage points.

Lidia Treiber, director of fixed-income research at WisdomTree Investments, said that while the U.S. was closer to rising interest rates than economies that were slower to recover from coronaviruses, it makes sense for fears of tighter U.S. monetary policy to spread around global bond markets .

“The US Federal Reserve is giving investors a window at a rate at which other central banks will eventually tighten,” she said, after a strong monetary stimulus set by global interest earners since the start of the pandemic.

In Europe, the Stoxx 600 scale lost 0.5 percent and the London FTSE 100 fell 0.6 percent. The dollar, measured against a basket of currencies, was traded unchanged.

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