Buffett ApprenticeFBND: Bonds rise amid strong US dollar.
The situation in the U.S. bond market is directly influenced by the Federal Reserve's monetary policy.
Just in the past week, the U.S. bond market experienced significant volatility. This was mainly due to Federal Reserve officials making successive statements about interest rate hikes, which further confused market expectations regarding rate increases.
First, last week, Federal Reserve Chairman Powell delivered hawkish remarks to the market, tightening the previously slightly eased policy outlook.
This led to initial volatility in the U.S. bond market on Wednesday.
However, on Thursday, April 18, 2024, U.S. time, the Federal Reserve's third-in-command and President of the New York Federal Reserve Bank, John Williams, stated that there is no rush to cut interest rates, and economic data will determine the timing.
"Monetary policy is in a good place," he said at the Semafor World Economy Summit in Washington. "Current interest rate levels are gradually helping us achieve our goals. So I don’t feel any urgency to cut rates. I believe monetary policy is working exactly as we hoped."
Williams also said that rate hikes are not his baseline expectation, but if economic data supports such a move to achieve the Federal Reserve's inflation target, rate hikes are still possible.
Williams' remarks sent chills through the fixed-income market. Originally, the market expected the Federal Reserve to cut rates once or twice by the end of the year, at the latest after September, thereby initiating a new rate-cutting cycle.
However, both Powell's shifting stance and Williams' latest comments have made the market more cautious about rate-cut expectations.
Judging from recent U.S. macroeconomic data, including inflation figures, U.S. inflation has not yet stabilized or declined to the Federal Reserve's desired level of around 2-3%.
In fact, the Federal Reserve is not satisfied with the current inflation levels. Earlier, Atlanta Fed President Raphael Bostic also stated that he expects interest rates to remain stable for most of the year and that rate cuts should wait until late in the year. "Inflation is high, too high. We need to bring it down to the 2% target. I’m willing to be patient."
Therefore, as expectations for Federal Reserve rate cuts continue to be delayed, the U.S. dollar is expected to strengthen further. The recent depreciation of Asian currencies against the dollar has also put some pressure on the U.S.
Despite these developments, U.S. bonds are expected to maintain their positive momentum. Although some bondholders are gradually reducing their holdings, the trend still points toward a rebound. $Fidelity Total Bd(FBND.US)
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