Treasuries Lead Global Bond Rally as Bets on Fed Rate Cuts Soar

Treasuries Lead Global Bond Rally as Bets on Fed Rate Cuts Soar

Stephen Moore, who U.S. President Donald Trump may nominate for a seat on the Federal Reserve Board, told the New York Times in an interview that the central bank should immediately reverse course and lower interest rates by half a percentage point.

Benchmark 10-year Treasury yields fell to their lowest levels since December 2017 on Monday while the yield curve between three-month bills and 10-year notes inverted further as investors evaluated last week's dovish pivot by the Federal Reserve.

An yield curve inversion typically precedes a recession by a year or two.

MSCI's all-country world equity index, which tracks shares in 47 countries, slipped 0.1 percent while Chinese mainland shares bounced nearly one percent as expectations deepened of more central bank stimulus.

Speaking at an investment conference in Hong Kong on Monday, Yellen said: "In contrast to times past, there's a tendency now for the yield curve to be very flat, because long term rates have two components". "This is not a healthy sign, as bond-market watchers should know and equity-market obsessives should rapidly learn". "How much further will this run before we see markets starting to do the same?"

"I'd be careful not to over-read or overreact in any moment to what markets are saying...because they have the ability to change on a dime", Kaplan said.

"I expect some correction to the latest rally in bonds".

The Treasury Department will sell US$113 billion (RM459 billion) in coupon-bearing supply this week, including US$40 billion in two-year notes today, US$41 billion in five-year notes tomorrow and US$32 billion in seven-year notes on Thursday. Unprecedented central bank stimulus may have also altered the curve dynamics, making an inversion a less clear signal of economic weakness than in the past.

The implied rate on fed funds futures that expire in January 2020 has fallen from 2.14 percent on Tuesday to 2.10 percent.

In the currency market, the fall in U.S. yields undermined the dollar's yield attraction.

The euro stood at US$1.1305, having gained a tad yesterday after Germany's IFO Institute said its business climate index rose to 99.6, beating a consensus forecast of 98.5 and ending six consecutive months of decline.

Prime Minister Theresa May will address Conservative Party lawmakers, possibly to indicate a timetable for her departure, as she tries to win support for her twice-rejected Brexit deal as parliament prepares to vote on a variety of possible options.

Oil prices hovered below their recent four-month peaks, as the prospect of tighter US crude supply was offset by concerns about a slowdown in global economic growth.

US crude futures traded at $59.55 per barrel, up three-quarters of a per cent on the day but below Thursday's $60.39, which was its highest level since mid-November.

Meanwhile, the S&P/ASX 200 index traded 0.37 percent lower at 6,104.50 by 03:35GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at 28.75 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend).

Gold retreated from the more than 3-week highs touched in the previous session.

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