What Can Investors Expect from the Fed in the Future?

Threats of higher bond rates sent equity markets into freefall last week - so what can investors expect over the coming year from the US central bank?

Peter Gee 16 October, 2018 | 2:34PM
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Federal Reserve US Central Bank interest rates bond yields

In the US the key 10-year Treasury bond yield has risen in recent weeks. There was a brief period in later August when investor worries, over Turkey in particular, and emerging-markets risk more generally, had spurred the buying of Treasuries as a safe-haven asset, and yields had fallen, with the 10-year yield dropping to close to 2.8%. More recently, however, yields have moved back up again, and the 10-year yield rose to a whisker below 3%.

Although they are still very low in absolute terms, yields have moved up a little in other major markets as well, with the German 10-year government-bond yield up from 0.31% to 0.41% currently, while its Japanese equivalent has risen from effectively zero at the start of July to 0.11% now. The increases in bond yields have been modest, but they have helped constrain the return from fixed-interest investments.

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Peter Gee  is a Fund Analyst for Morningstar Australia