Rates Fall as G7 Statement Disappoints, Attention Turns to Central Banks

 

Central banks signal they will support markets through rate cuts and other policy tools. Bond yields in the US and Europe are lower this morning after the ECB, the Fed, and the BOJ hinted at a potential rate cut to counteract the virus impact. Futures markets are pricing in a 0.5% rate cut at the next FOMC meeting, moving the target range to 1-1.25%. Yesterday’s ISM manufacturing index figures barely landed in the expansionary range which could indicate lower numbers in the future. Recent factory employment figures have also dropped from a year earlier – a possible sign that the US economy could contract. After a week of elevated volatility and a new low of 1.03%, the current 10-year Treasury yield sits at 1.135%.

 

 

G7 meets, pledges action to support markets. The G7 held an emergency meeting and discussed a possible coordinated response to the virus. In a statement released after the meeting the G7 said “we affirm our commitment to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against all downside risks.” Despite the broad pledge to support markets, nothing concrete was committed to the call- turning attention once more to the world’s central banks as they mull rate cuts and other stimulus measures.

 

 

Day ahead. Cleveland Fed President Loretta Mester and Chicago Fed President Charles Evans will speak on the economy and current monetary policy. The coronavirus taskforce will hold a briefing at the White House this evening. Today is Super Tuesday, and 14 states will vote to select a nominee for the Democratic party.