Fed Flashes a Big Green Light to the Global Bond-Market Rally

The Marriner S. Eccles Federal Reserve building stands in Washington, D.C., U.S.

Photographer: Andrew Harrer/Bloomberg

Initial focus on the Federal Reserve’s policy decision centered on the unexpectedly strong expectation for a December interest-rate hike. But in the Fed’s pseudo yield-curve control framework, what could be more important is the cut in the projected end-point for the key rate.

The new dot-plot of Fed officials’ projections showed a quarter-point reduction in the median long-term estimate for the benchmark, to 2.75 percent. That’s two and a half percentage points below where the target was before the global crisis began a decade ago.

"The long end of the yield curve looks more attractive" given that reduction, Morgan Stanley analysts including Ellen Zentner wrote in a note.

And if long-term U.S. Treasuries are more attractive, that makes corporate and emerging-market debt all the more enticing. It all adds up to a green light for the three-decade bond bull run to keep on going, and presents no headwinds for the surge in debt issuance seen this year.

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