Bill Gross says it’s the “end of the line” for negative rates in Europe, and global bond markets appear to agree.
Sovereign debt in the U.S. and Europe declined after the European Central Bank cut its lending benchmarks and expanded bond purchases in the latest effort to boost economic growth. ECB President Mario Draghi said the bank doesn’t “anticipate it will be necessary to reduce rates further” and would instead focus on quantitative easing. In the wake of that statement, U.S. and German benchmark yields climbed to their highest level in more than a month.
The global monetary policy door is “closing fast -- developed market yields have bottomed,” Gross, manager of Janus Capital Group Inc.’s $1.3 billion Janus Global Unconstrained Bond Fund, wrote in a tweet. In another post, he said the ECB policy moves were “actually more fiscal than monetary” and marked the end of the line for rates moving below zero.
The U.S. 10-year yield has risen on six out of eight trading days this month as investors weigh the outlook for global central-bank policy. Last month, a rally sent the 10-year yield to its lowest since 2012, as volatility in stocks and commodities fueled concern that slowing global growth may suppress the U.S. economy. Investors await the Fed’s March 15-16 policy meeting for hints about the path of U.S. interest rates.
Benchmark 10-year note yields rose five basis points, or 0.05 percentage point, to 1.93 percent as of 3:56 p.m. New York time, according to Bloomberg Bond Trader data. The yield reached the highest on an intraday basis since Feb. 2. The price of the 1.625 percent note due February 2026 fell 15/32, or $4.69 per $1,000 face amount, to 97 8/32.
The ECB can cut interest rates further but isn’t likely to, Draghi said after unveiling stimulus on Thursday.
“If you’re in a situation where you believe inflation may disappoint to the downside, that’s capping how much the ECB suggests they’re willing to do, where the boundaries are and where they’re willing to take” easing efforts, said Aaron Kohli, a fixed-income strategist at BMO Capital Markets in New York, one of the 22 primary dealers that trade with the Fed.
Overnight-indexed swaps traders see about a 72 percent chance the Fed will raise rates by December, according to data compiled by Bloomberg. That probability fell as low as 17 percent last month, amid a steep drop in global stocks on Feb. 11. The calculation assumes the effective fed funds rate will average 0.625 percent after the Fed’s next increase.
The U.S. sold $12 billion of 30-year debt Thursday at a yield of 2.72 percent. It was the last of three note and bond sales this week totaling $56 billion.
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