This site uses cookies to provide you with a great user experience. By using BondbloX, you accept our use of cookies.
The latest U.S. Federal Reserve Beige Book survey last week showed a pickup in economic growth but inflation that remains muted, supporting market expectations that a third interest rate hike this year is unlikely. Economists anticipate that the Fed will hold its benchmark rate steady at its next meeting in mid September, though they continue to expect policymakers will take the next step in the removal of quantitative easing through an imminent reduction of the Fed’s $4.2 trillion bond portfolio.
Last week’s weekly flows into bond mutual funds of US$6.6 billion – vs only US$3.7 billion into stock funds – was in line with market sentiment towards this upcoming Fed inaction. Investment grade bonds saw inflows for the 37th straight week, emerging market debt saw inflows for the 32nd straight week, and government bonds saw the largest buying activity in 61 weeks at a US$1.8 billion total last week.
Meanwhile in Japan, with U.S. policy boosting demand for safe assets amidst the environment of geopolitical tensions, foreign investors lapped up a net 1.3592 trillion yen (US$12.46 billion) of medium- to long-dated Japanese bonds, according to weekly data from Japan’s finance ministry for the week ending September 2. Foreign investors were thought to have bought Japanese govies as an alternative to U.S. Treasury ones because of their fears of a potential technical default by the Fed if the U.S. Congress decides not to raise the country’s debt ceiling. The benchmark 2-year JGB yield fell to a three-month low of minus 0.170 percent on Aug. 31 and the 10-year JGB yield declined to a 10-month trough of minus 0.010 percent in early September.