Bonds: Fed officials push back on rate cut speculation
By Alexander Bueso
Date: Thursday 04 Apr 2019
(Sharecast News) - These were the movements in some of the most widely-followed 10-year sovereign bond yields:
US: 2.51% (-1bp)
UK: 1.08% (-1bp)
Germany: -0.01% (-1bp)
France: 0.37% (-3bp)
Spain: 1.11% (-3bp)
Italy: 2.52% (-2bp)
Portugal: 1.26% (-1bp)
Greece: 3.61% (-5bp)
Japan: -0.04% (0bp)
Longer-term government bond yields around the globe saw almost across-the-board declines, with Gilts tracking losses on similarly-dated US Treasuries at the 10 year tenor, as investors waited on the jobs report for March in the States that was due out the next day.
They were also waiting on the results of the ongoing talks between the government and the Labour party regarding how best to avoid a 'no deal' Brexit and perhaps also on the conditions to apply to any second people's vote on the divorce terms which might finally be agreed with the European Union.
Key to the Thursday session, two top Federal Reserve officials held out the possibility of further interest rate hikes should the economy perform well.
Their comments followed multiple remarks recently from officials in the Trump administration, and the President himself, backing a rate cut.
On that note, reports indicated that Trump's intention was to nominate an chief executive of retail chain Godfather's Pizza, Herman Cain, to the Federal Reserve Board.
In remarks prepared for a speech at the Philadelphia Council for Business Economics, Philly Fed chief Patrick Harker said: "Accounting for all those factors - a strong labor market, muted inflation, sustained moderate growth, and the penumbra of uncertainty - I continue to be in wait-and-see mode, and my outlook for rates remains, at most, one hike for 2019 and one for 2020."
To take note of, according to Bloomberg, Harker later said: "I would never say never to a cut. But in this point, in my forecast, I don't foresee it for this year or next year."
Cleveland Fed chief Loretta Mester was in a similar frame of mind, reportedly telling an audience in Cleveland that the Fed's tightening cycle may be over, but should the economy bounce back as she expected, then official short-term interest rates may need to move higher.
Thursday's decline in yields also came despite the release of the latest weekly US weekly jobless data that revealed a drop of 10,000 for initial claims to 202,000, the least going all the way back to March 1969.
On 8 November 2018, the yield on 10-year Treasury note had reached its current cycle high at 3.24%, but then began a precipitous drop to 3.27% by 27 March.
In parallel, Fed funds futures had shifted from pricing-in close to two rate hikes to nearly even odds of a cut by the close of 2019, although the Fed did hike rates one more time in between, in December.
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