Euro zone bond yields tick up as Fed cut underwhelms
Core euro zone bond yields inched up from all-time lows on Thursday after US Federal Reserve Chairman Jerome Powell tempered bets on more rate cuts after the central bank’s first cut in more than a decade.
Ten year bund yields fell sharply ahead of the Fed meeting to hit new record lows of -0.442 percent, and remained close to this level at -0.428 percent in early trade.
The Federal Reserve cut interest rates on Wednesday, but the head of the U.S. central bank said the move might not be the start of a lengthy campaign to shore up the economy against risks including global weakness.
“Let me be clear it’s not the beginning of a long series of rate cuts,” Powell said in a news conference after the Fed released its latest policy statement. At the same time, he said, “I didnt say its just one rate cut.” US Treasury yields rose after the announcement and were seen three basis points higher at 2.051 percent.
In the US, shorter-dated yields rose as traders scaled back positions on future rate cuts, while longer-dated yields fell on the Fed’s muted inflation outlook and the halting of its balance sheet normalization two months early.
Mizuho rates strategist Peter McCallum noted that despite Powell’s reference to “mid-cycle adjustment,” the United States’ vast corporate debt and close to contraction manufacturing sectors suggest a much weaker outlook.
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