By Matt Wirz
U.S. government-bond yields dropped after the Federal Reserve held interest rates steady and signaled the central bank was unlikely to raise them soon.
The yield on the benchmark 10-year Treasury note closed around 1.786% Wednesday after the Fed's announcement, down from 1.833% on Tuesday. Bond yields fall when their prices rise.
The decision to keep rates unchanged was expected but "they are sounding a lot more bullish on the economic outlook," said Mary Ann Hurley, a bond trader at D.A. Davidson & Co about the comments from the Fed. "I was also surprised to see a rate hike on the agenda for 2021 -- that's eons away."
Aggressive easing by the Fed and the European Central Bank this year have set the stage for slow-but-steady economic growth in developed markets, said S&P Global Ratings economist Paul Gruenwald in a Wednesday report.
"The outlook for 2020 is therefore shaping up as, hopefully, unexciting steady-state growth in many advanced economies," he said.
A slight increase in a key U.S. inflation measure in November pointed to moderate economic expansion with muted price pressures. The consumer-price index, which measures the cost of everyday goods and services, rose 0.3% in November from the previous month. Inflation hurts the purchasing power of bonds' fixed payments and can spur central bankers to raise rates.
The dollar slipped to its lowest level since mid-July after Federal Reserve Chairman Jerome Powell said the central bank was unlikely to raise rates until it sees a persistent rise in consumer prices, a goal that the central bank has found difficult to achieve in recent years. Expectations that rates will not rise tend to diminish the dollar's attractiveness to yield-seeking investors. The WSJ Dollar Index was recently down 0.4% to 90.22.
In emerging markets, Ecuadorean government bonds rebounded after the country's legislature passed Tuesday tax reforms that President Lenin Moreno struggled to push through in November. Investors also took comfort after the International Monetary Fund reached Tuesday a staff level agreement with Ecuador on the extension of a $498 million lending facility.
Ecuador's 10.75% bond due 2029 climbed to 92 cents on the dollar, up from about 88.90 cents Tuesday and roughly 85 cents before the passage of the reform bill, according to MarketAxess. The bond traded around 103 cents a month ago before President Moreno's attempt at a fiscal overhaul met strong opposition and foreign investors dumped the country's debt.
"The initial pushback from the legislation was not a rejection of the economic program but rather a political mistake from the Moreno administration to force through an overly aggressive omnibus reform package," said Siobhan Morden, a strategist at Amherst Pierpont Securities, in a Wednesday report.
Write to Matt Wirz at email@example.com
(END) Dow Jones Newswires
December 11, 2019 17:09 ET (22:09 GMT)
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