Asia collapses, US Treasury yields soar. Fed earthquake in markets

The Fed shook the markets todayAlthough there was no surprise in the decisions announced on the evening of September 20.

the Asian stock markets are sinkingWhile US 10-year bond yields and the dollar index are finding more momentum, rising to new record levels.

Specifically, Asian stocks are following Wall Street’s lead, losing ground as investors interpret the latest policy data from the Federal Reserve as a sign of higher interest rates for longer.

In Asia, the Nikkei closed down 1.22% and in China, Shenzhen and Shanghai are about to end the session with losses of 0.86% and 0.50% respectively.

Treasury bonds were sold after the decision, with i US government bond yields At two, five and ten years old It rose to its highest levels in more than a decade. Wednesday’s 0.9% drop for the S&P 500 was the Fed’s second-worst day this year, second only to the 1.7% decline seen in March.

EUR/USD is trading near weekly lows below 1.0650, with the dollar benefiting from the Fed’s still somewhat hawkish tone.

Markets overwhelmed by the Fed: What happens today?

Rates were unchanged at this meeting and expectations for a further increase in 2023 and smaller reductions in the cost of funds in 2024: with these The Federal Reserve’s decisions sent stocks into chaos And restore momentum to bond yields.

Yield on US Treasury bonds Two-year bonds rose to a 17-year high of 5.1970% and settled around the 5.18% level in the early afternoon of the US session. At the time of writing, the yield on the 10-year T bond was 4.42%, a jump of 1.82%.

Meanwhile, the dollar index, which measures the currency against a basket of rivals, rose to 105.59 on Thursday, its strongest level since March 9, pushing the yen close to its weakest level since November.

The crucial step in yesterday’s meeting was the bullet chart Expectations about the near future of interest rates.

These estimates indicated the possibility of a Another increase this yearThus, two reductions in 2024, two fewer than what was estimated during the last update in June. This would raise the funds rate to about 5.1%. Expectations for the federal funds rate for 2025 also rose, with the median forecast at 3.9%, up from 3.4% previously.

Over the longer term, FOMC members have targeted a funds rate of 2.9% in 2026. This is higher than what the Fed considers a “neutral” interest rate, which is neither stimulating nor constraining on growth. This was the first time the committee offered a look ahead to 2026.

These upward revisions to US policymakers’ expectations for average interest rates for the next two years caused the US dollar to rebound, pushing US Treasury yields to their highest levels in several years, flattening the yield curve and sending stocks lower.

Awaiting today’s BoE decision, the British pound is losing ground as it expects a pause in interest rate increases from the BoE as well.

US and European stock futures are in the red. Even with no surprises from the Fed and very encouraging estimates of US growth and low inflation, there is still a great deal of uncertainty among investors.