Global markets: Bonds hold gains after Fed’s surprise rate cut

Bonds held onto gains on Wednesday after the U.S. Federal Reserve’s surprise 50 basis point interest rate cut, part of global efforts to contain economic damage from the coronavirus outbreak.

The Fed’s first off-schedule move since the 2008 financial crisis came with comments highlighting both the scale of the challenge and the limits of monetary policy.

In response, the benchmark 10-year U.S. Treasuries yield, which falls when prices rise, held below 1% – not far over the overnight low of 0.9060%. The yield has fallen for ten straight days, its longest slide in at least a generation.

Euro zone bond yields also held near record lows on Wednesday, with Germany’s benchmark 10-year Bund yield around -0.64%, near six-month lows set on Monday.

Some saw the Fed’s extraordinary move as a decision to move hard and early because it expected further economic damage from the spread of the coronavirus.

“They have signalled willingness to take further action, which is why we are seeing a further rally in bonds,” said Tim Drayson, head of economics at Legal & General Investment management. “Some argue that monetary policy can’t fight the supply shock – but it will support demand and confidence.”

With safe-haven currencies in demand, the dollar clawed back some ground from near five-month lows versus the yen  and fell to its lowest against the Swiss franc  in almost two years. It was flat against a basket of six major currencies =USD.

Global stock markets edged up as investors weighed prospects for further central bank support, while a strong performance by Joe Biden in the Democratic Party primaries in the United States also emboldened bets.

The Euro STOXX 600 gained 1.5%, on course for a third straight days of gains. Markets in Frankfurt, London and Paris gained a similar amount.

“After the action from the Fed the market is very, very watchful now for potential moves from other central banks,” said Jeremy Stretch, head of G10 FX strategy at CIBC.

On Wall Street, S&P 500 futures ESc1 climbed 1.8% on Biden’s showing, after falling overnight despite the Fed’s rate cut.

Biden, a moderate seen as less likely to raise taxes and impose new financial regulations, won primaries in nine states. That set up a one-on-one battle for the Democratic presidential nomination with democratic socialist Bernie Sanders.

The European moves built on gains in Asia, where MSCI’s broadest index of shares outside Japan .MIAPJ0000PUS rose 0.3%.