Investing.com – US treasuries rose despite the Fed’s announcement on Wednesday that there will be no interest rate hikes anytime soon.
Bonds reached 2.51%, while seeing the 14-month high of 1.75%. The 30-year return is the highest since August 2019.
Market players are confident in their sixth sentiment, believing that tightening could happen sooner than the Fed implies. The indicator, which is more sensitive to short-term interest rate changes expectations, rose to 0.87% from 0.35% at the beginning of the year.
The Fed revised its economic forecast for 2021 on Wednesday. It now sees a 6.5% growth in GDP this year: its forecast for December was 4.2%.
Robin Brooks, chief economist at the Institute of International Finance, tweeted, “The markets are testing the Fed to see how much longer it can raise interest rates. Yesterday’s FOMC press conference coincided with that of June 2013. That year, the FOMC underestimated the increased long-term returns and amplified the abatement craze. “This is what is happening now.”
Brooks said the Fed’s message meant it would maintain its policy even as growth and inflation rise. “However, the longer term returns of the USA will continue to increase from now on and will repress the emerging market currencies …”
Bond market shareholders said the Fed will allow the economy to warm until the 10 million jobs lost from Covid-19 are restored. The Fed’s dissatisfaction with higher inflation may be disturbing investors as it depreciates their bonds. Returns move in the opposite direction with prices.
This boom in the economy happens after the trillions of dollars minted to reduce the damage of the epidemic, and the Fed does not yet need to take its foot off the pedal.
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