Dovish US Fed will calm bond markets: XTB

Dovish US Fed will calm bond markets: XTB

Recent volatility in Australian government bonds is likely to subside this week if the US Federal Reserve keeps rates on hold as expected, says XTB.


Speaking ahead of the InvestorDaily Asset Strategy Forum 2016 on 19-20 October, XTB chief executive Richard Murphy explained that the volatility seen in bond markets in recent weeks has been driven by “very big macro factors”.

“All bond markets in Australia, whether it’s government or corporate bonds, they’re not disconnected from the rest of the world, in fact bond markets around the world are entirely connected to each other. That’s really what’s driving this,” he said.

Mr Murphy added that economic data in the US was looking better than it has, with reasonable growth and inflation, but noted that this week’s decision is expected to be to hold rates steady.

“Some people think they’ll increase this week. More people think that they won’t and they’ll increase again in December when they meet again,” he said.

Volatility is always present in markets to varying degrees, Mr Murphy said, but if the Fed holds steady it’s likely “a dampening down will occur throughout the week”, he added.

“Generally speaking, the market has a good sense of where things are going, so you’d expect there’d be a stable market following what’s expected this week – no change in rates in the US,” Mr Murphy said.

Richard Murphy is speaking at the InvestorDaily Asset Strategy Forum 2016 in Sydney on 19 October and Melbourne on 20 October. Early bird tickets are available until 30 September – book now to avoid disappointment.

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