Treasuries Lead Global Bonds Higher as Fed Keeps Rates on Hold

  • German 10-year bund yield drops most in more than a month
  • Japanese bonds rise even as BOJ refrains from adding stimulus

U.S. Treasuries led gains by government bonds across the developed world after the Federal Reserve left interest rates unchanged on Wednesday and signaled it was in no rush to act.

The yield on the Treasury 10-year note slipped to the lowest in a week, while that on similar-maturity German bunds slid the most in more than a month. Japanese bonds advanced after the Bank of Japan kept its policy unchanged, sparking a selloff in stocks. BOJ Governor Haruhiko Kuroda said after the decision that the central bank would add to stimulus if needed. Italian bonds headed for their first back-to-back gains this month.

Inflation data from Germany, Europe’s largest economy, provided more reasons for central banks to maintain their easing-bias stance, with consumer prices either dropping or increasing at a slower pace last month among states to release data for April, before a nationwide report later Thursday.

Bonds in the euro region have been supported by the European Central Bank asset-purchase program of 80 billion euros ($91 billion) a month. The BOJ’s policy mix includes an 80 trillion-yen ($740 billion) target for expanding the monetary base, a 0.1 percent negative rate on a portion of the cash lenders park at the central bank, and a program to buy riskier assets including stocks.

‘Dovish Bias’

“It’s hard to get yields higher when central banks are keeping a dovish bias and rates are extremely low,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. “The BOJ will have to move sooner or later and the market will start pricing that in again.”

Benchmark Treasury 10-year note yields dropped two basis points, or 0.02 percentage point, to 1.84 percent as of 6:51 a.m. New York time, according to Bloomberg Bond Trader data. The 1.625 percent security due in February 2026 rose 5/32, or $1.56 per $1,000 face amount, to 98 1/8. The yield earlier reached 1.81 percent, the lowest since April 20, after falling eight basis points Wednesday, the steepest decline since March 29.

Germany’s 10-year bund yield slid five basis points to 0.24 percent, set for the biggest drop since March 17, while equivalent Japanese bond yields declined three basis points to minus 0.085 percent. The yield on Australian 10-year bonds tumbled 10 basis points to 2.52 percent, the biggest decline since Feb. 19.

Italy’s 10-year yield dropped five basis points to 1.46 percent and that on U.K. 10-year government bonds, or gilts, fell five basis points to 1.58 percent.

Rate Outlook

Futures traders assign a 21 percent chance the Fed will raise rates from the current range of 0.25 percent to 0.5 percent by June, and a 65 percent probability of an increase this year. Policy makers raised the key rate in December for the first time since 2006.

The Treasury plans to sell $28 billion of seven-year notes Thursday, as well as $15 billion of two-year floating-rate securities. The notes due in April 2023 yielded 1.62 percent in pre-auction trading, compared with 1.606 percent at a previous sale of seven-year debt on March 30.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE