Federal magnetism saves German bonds from ‘negative debt’

The biggest cash move of 2021 is about to happen as of Wednesday when The Federal Reserve (Fed) is shutting down 20 months of its “ultra-expansionary” policies. Zero interest rate and $120,000 million per month debt purchase program. The expected confirmation of “diminishing” (reducing stimulus) is starting to emerge in global debt markets as rising yields drag on German bonds.

distance The Dutch and French government debts for 10 years came out of negative rates, also over the longer term like 20 or 30 years, bonds backed by Germany, which is considered risk-free, also started down the same path. The ten-year “package” came to touch positive profitability this Monday, at -0.06%, although at the end of the session it remained in “red numbers” with the only company committing Switzerland to the same duration. The interest that investors pay for this bond has reached its highest level since May 2019… but it is still negative.

The expected double appointment with the meeting of the US Federal Reserve (Fed) from Tuesday until tomorrow, where its decision is known, It acts as the center of gravity of the public debt system for the rest of the countries. Emphasis on a somewhat less relaxed stance came from the central bank led by Jerome Powell at the September meeting, despite a lack of time details and call amounts. diminishing or limit stimuli.

currently, The Fed Buys $120 Billion of Federal Treasury Bonds and mortgage bonds at 60% and 40%, respectively. As posted “Information”, Investors expect from Powell’s speech a roadmap for “tapering”All the more pronounced due to the context of the economic slowdown and high inflation currently sweeping the markets. “The gradual reduction announcement on November 3 seems inevitable Now that governors have generally agreed that “additional substantive progress” has been made on both inflation and employment mandates, they explain. James Knightley And James Smith, economists at the Dutch bank ING.

in your opinion, The minutes of the Federal Open Market Committee’s September meeting set a possible calendar which starts in november with cAsset purchases decreased by $15 billion per month, divided into 10 billion lower treasury bonds and 5 billion lower mortgage bonds. In this way, the plan will reach zero in June, which is the time when the economy should be at a breakneck speed in growth as well as in job creation with persistently high inflation.

In fact, uncertainty about this ideal scenario is growing due to The apparent intensification of inflationary pressuress, which could push the Federal Reserve, build a more aggressive stance and raise interest rates three times from July, according to ING. “We don’t think the rate hikes will be too late and the markets seem to agree with it With interest rate increases expected in developed markets,” they add in their forecast.

big investors They have taken note of this tension with a clear commitment to Treasury inflation-protected bonds, known as Tips, which was the best performing bond market segment in October and topping fixed income returns so far in 2021. Morningstar US TIPS is back 4.95% year-to-date. and 1.76% in October alone, more than any other fixed income category this year.

“With mounting evidence that inflationary pressures are proving to be stronger than many expected, investors have flocked to inflation-protected bonds,” the analyst says. Lauren Solberg At Mornignstar, remember that this will be the third consecutive year of strong earnings for TIPS. but Unlike the past two years, TIPS is recovering, While the rest of the bond market remained stable or recorded losses.