Bonds: Traders take positions ahead of US FOMC meeting
Traders pushed Treasuries lower despite expectations the US central bank would maintain its policy settings unchanged, although it was largely seen to the wording of its last policy statement.
Perhaps in a sign of caution, US Treasury 10-year bond yields rose by five basis points to 1.98%.
In particular, traders wanted to know just how much, if at all, recent weak readings on economic activity Stateside had ruffled the feathers of the more hawkish members who sit on the FOMC, the US central bank’s rate-setting organ.
One recent reading on a gauge of the US economy hinted at the possibility that gross domestic product (GDP) might have barely managed to grow at all during the first three months of the year.
References in the statement to the recent strength in the US dollar – JP Morgan predicts the resulting weakness in next exports will subtract 0.4 percentage points from external demand – were also likely to be scrutinised.
In not untimely fashion, earlier on Wednesday Sweden’s own central bank was to decide on rates.
The Riksbank was seen by economists lowering the repo rate to -0.35% from -0.25%. Late in the financial crisis it adopted a hawkish stance only to later find itself trying to fend off the drop in the country’s rate of inflation – a chain of events which US Fed chair Janet Yellen is eager to avoid.
An auction of $35bn in US Treasury five-year notes saw the bid-to-cover ratio edge higher to 2.56 from 2.54 the last time around. The indirect bidder participation rate edged higher to 61.2% from 60.5% at the last sale.
Greek 10-year bond yields fell again, by 66 basis points to 10.99%.
That came after a very weak reading on first quarter economic growth in the UK which saw Barclays put “under review” its forecast for a first increase in Bank Rate in the fourth quarter of 2015. The British economy grew just 0.3% quarter-on-quarter in the first three months of the year, as the services sector “slowed down markedly”.