US bond traders bet on more Fed rate cuts
Bond traders have lifted bets on interest-rate cuts from the Federal Reserve amid concern that Donald Trump’s trade war will backfire on the US economy, sending the yield on benchmark Treasuries toward the closely-watched 4% level.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
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Ten-year yields declined as much as nine basis points last Thursday to 4.04%, the lowest level since October. Money markets started to price a small chance of the Fed delivering four quarter-point rate reductions this year, a scenario that wasn’t contemplated on 2 April.
Concern that the steepest increase in American tariffs in a century will hammer economic growth is driving a fierce rally in global bond markets, with yields on European and UK bonds also plunging. Similarly, traders ramped up wagers on monetary easing from the European Central Bank and the Bank of England, boosting the chances that both deliver three more cuts this year.
“The bond market is a big winner,” said Kathleen Brooks, research director at XTB. “Central banks are likely to step up to ease some of the pain from the US’ new global trade policy.”
Trump’s tariff plan came much harder than expected, as he announced a minimum 10% levy on all exporters to the US and slapped additional duties on nations with big trade imbalances. The move escalated global trade tensions and sent investors rushing for safe havens.
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The response in bond markets was sharp. European yields tanked across the board, with Germany’s policy-sensitive two-year rate down as much as 12 basis points to 1.92%, while 10-year peers fell 10 basis points to 2.63%. Swaps are now pricing 70 basis points of further easing from the ECB this year, compared to 60 basis points on Wednesday.
In the UK, traders added about 10 basis points of rate-cut expectations to the year, and now see a chance of more than 50% that the BOE will lower borrowing costs three more times. Gilt yields fell across the curve, sending the two-year rate to the lowest since October.
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This story originally appeared on: India Times - Author:Faqs of Insurances
