InvestorQ : Why are the bond markets not too happy with the FOMC announcement?
diksha shah made post

Why are the bond markets not too happy with the FOMC announcement?

Aashna Tripathi answered.
3 weeks ago

One would have expected that the FOMC statement would have given a lot of hope to Indian investors due to its dovish stance and the assurance given that no rate hikes would be undertaken for the next 3 years. That may look like a long time to predict. But the assurance from the RBI should do a lot of good to the bond markets.

In fact, just two days after the FOMC policy was announced, the bond yields continued to rally all the way up to .75%, Even the 30-year bond yields crossed 2.5% after a very long time. Bond traders and analysts have found some real anomalies in the FOMC statement. A sharp rebound in GDP growth of over 6% in CY22 is expected to engender higher inflation too.

What about the pace of bond buying? Bond markets are sceptical if the $120 billion bond buying program can be sustained for too long considering Fed balance sheet at $8 trillion. It is also felt now that the rapid pace of balance sheet expansion by the US Federal Reserve cannot be sustained for too long. That is the reason for the dichotomy wherein Fed is emphatic about rates and liquidity but the bond markets are not exactly convinced.