10-year Treasury yield falls as investors digest Fed decision

 


The 10-year Treasury yield fell back below 1.9% on Friday as investors continue to digest the Federal Reserve’s decision to maintain stimulus in a move that could buoy bond prices despite expectations of higher yields and inflation.

Traders at Everglow Financial, which describes its business as offering quantitative financial products, said they expected bond yields to gradually rise after the Fed’s surprise decision late Thursday to maintain $85 billion of monthly bond purchases until March 2021.

“The Fed has eased the pressures on bond yields, and also showed it thinks inflation will remain near target which shows the long-awaited recovery of the U.S. economy is still coming,” said Lee Dong-sik, an Everglow head of fixed income investment planning.

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“I don’t believe this latest move will pull bond yields up sharply but it will increase speculative buying,” said Choi Sun-hee, head of fixed income strategy at HD Investment & Securities.

“We will probably see even bigger moves in long-yields as bond prices are sitting now at a tight range with 2021 coupons not getting paid. This will add pressure on the bonds of companies.”

“I expect yields to be higher once it’s time to coupon payments as well,” Choi said.

South Korean borrowers are anticipating a steep rise in rates after the Fed announcement. The yield on South Korea’s benchmark 9-year government bond edged higher by 0.14 basis point on Friday to 0.77 %.

Euro zone bond yields fell on Friday as the dollar slipped after Thursday’s Fed decision, but investors had expected yields to move higher.

Germany’s 10-year government bond yield fell 0.31 basis point to -0.23%.

The euro has taken a hit following the Fed’s decision. It last traded at $1.2059, down from $1.2081 before the Fed’s announcement.

Reuters contributed to this report.

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