Euro zone yields near one-week highs ahead of Fed meeting
Euro zone government bond yields edged lower but were near one-week highs on Wednesday ahead of the U.S. Federal Reserve meeting, with rate setters expected to hint towards tighter monetary policy in the future. The Fed is expected to keep interest rates unchanged but possibly hint that it will start winding down its massive holdings of bonds as soon as September in what would be a vote of confidence in the U.S. economy. Such a move would add to a sense across most developed countries that extraordinary monetary stimulus is drawing to close as economies slowly recover from a debilitating set of financial and debt crises between 2008 and 2012. “The Fed has been rather clear up to now, and I expect it to signal today that balance sheet reduction will kick off in September and a rate hike will come maybe at the end of the year,” said DZ Bank strategist Christian Lenk. The yield on 10-year U.S. Treasuries stayed above 2.30 percent on Wednesday, having risen sharply by 8 basis points the day before, dragging European bond yields higher along with it.
China says to steadily expand opening of capital markets
China’s securities regulator pledged on Wednesday to expand access to capital markets for all types of investors, while encouraging more long-term institutional participation in the financial domain. In a brief report on its website, the China Securities Regulatory Commission (CSRC) also said it would maintain “normalization” of initial public offerings, improve the mechanism for delisting shares from stock markets and steadily expand the opening of China’s capital markets. It did not provide details. “We must regulate and expand, in accordance with the law, the various channels for funds to enter the market, develop long-term institutional investors, maintain and consolidate the momentum of positive development of the capital markets,” it said. The report on the CSRC’s broad plans follows a once-in-five-years meeting of financial regulators and top leaders in Beijing this month that established priorities for financial market development in the coming years and bolstered the central bank’s power to coordinate financial oversight. Chinese leaders have long promised more financial market openness but have sought to balance the liberalization moves with efforts to limit risks, a priority this year after a sharp increase in leverage threatened to undermine the economy.
Fed expected to leave rates unchanged; balance sheet in focus
The Federal Reserve is expected to hold interest rates unchanged on Wednesday and possibly hint that it will start winding down its massive holdings of bonds as soon as September in what would be a vote of confidence in the U.S. economy. The U.S. central bank will issue its latest rates decision following the end of a two-day policy meeting at 2 p.m. EDT. Economists expect the Fed’s benchmark lending rate to remain in a target range of 1.00 percent to 1.25 percent. That would mark another pause in the monetary tightening campaign that the Fed began in December 2015. The central bank has raised rates twice this year, including at its last policy meeting in June. Wall Street analysts see little chance the Fed will announce the start of the wind down of its $4.5 trillion balance sheet. However, the Fed’s policy statement may provide more visibility on when that might occur. Citibank economists said in a note to clients that the Fed’s rate-setting committee was more likely to say that the trimming would start soon. “(That would) signal that the committee plans to announce balance sheet reduction in September,” they said in the note.