Treasury yields tumble to lowest level since November 2012 after Fed decision

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16 June, 2016

Treasury prices rose slightly Wednesday, pushing yields to fresh 3½-year lows, as investors braced for the Federal Reserve's policy statement on interest rates, expected at 2 p.m.

The Fed held its benchmark short-term rates steady as widely expected by investors.

Global benchmark U.S. 10-year bond yields fell 4 points to 1.57 per cent after the Fed meeting this morning, dragging Aussie bonds lower too as investors scrambled for safe-haven assets that offer a reasonable yield. Yellen's comments could help investors gauge whether a rate increase in September or December is among policy makers' plans.

The yield on the two-year Treasury TMUBMUSD02Y, -0.03% gained 0.4 basis point to 0.726% and the 30-year yield TMUBMUSD30Y, -1.11% lost 1.5 basis points to 2.409%, its lowest level since January 2015.

More news: Britain's pro-EU side nervous as odds slashed on 'leave'

High-grade government bond yields have plunged in recent weeks amid stepped-up bond buying by the European Central Bank, rising concerns that the United Kingdom could vote to leave the European Union in a June 23 referendum and growing confidence that the Fed will hold off in raising interest rates this summer after a recent disappointing jobs report. Treasury yields fall when prices rise and vice versa.

Last night the Fed backed away from its forecast for four rate increases this year as it acknowledged the softer USA jobs market revealed by the slump in May non-farm payrolls data. Fed funds futures rates show investors now see just a 10 percent chance the Fed will raise rates at its July meeting and a less-than-50-percent chance of an increase by the end of the year, according to CME Group's FedWatch tool.

In the April statement, the Fed deleted a note about risks posed by "global developments" in a nod toward the relatively calm global markets and benign global economic data that were released in the prior period. Ahead of the United Kingdom's vote next week on whether to leave the European Union, few expected the Federal Reserve to take action, but officials also lowered their economic growth forecasts for 2016 and 2017 and indicated the US central bank would be less aggressive in tightening monetary policy after the end of this year. After briefly climbing back into positive territory, it was negative 0.011% in recent trading Wednesday.

Bond prices move in the opposite direction of yields.


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