Bond Markets Breathe Sigh of Relief as Fed Rate Hike Odds Rise
Bond markets are still reeling from recent turmoil, but yields in the US and Japan edged lower on Thursday. Oil prices remain above $90 a barrel due to escalating tensions between the US and Iran, fueling inflation fears that have prompted central banks to tighten monetary policy.
Markets now expect a 25-basis-point rate hike from the Federal Reserve this month with about 67% probability, up from 37% odds just a week ago. However, Federal Reserve Bank of New York President John Williams tempered expectations by saying that rising long-term bond yields are a reflection of a solid economy and that he wants to see more data before deciding on rates.
The upcoming ADP labour figures on Wednesday came in below expectations, but the more reliable monthly report on US nonfarm payrolls is set for release on Friday. The European Central Bank and the Bank of Japan also have their own inflation concerns, with Japanese government bonds showing decent demand at a recent auction.