Shorter-dated Asian sovereign bonds experienced a decline, mirroring the movement in Treasuries, following the Federal Reserve's decision to raise interest rates for the first time since 2023. This move, accompanied by signals of further tightening to combat inflation, also led to the dollar gaining the most since June. Government bonds in Australia and New Zealand also slipped in early trading, as the yield on the rate-sensitive two-year US note increased by seven basis points to 4.74%, reaching its highest level since 2024.
The market's reaction was largely influenced by the hawkish tone struck by Fed Chair Kevin Warsh, who stated that the rate increase "removed a dose of accommodation." The Federal Open Market Committee (FOMC) unanimously voted to lift the benchmark rate by a quarter percentage point, setting it in a range of 3.75% to 4%. The Fed's "dot plot" projections indicated the likelihood of one additional rate increase this year.
Money markets are now pricing in approximately a 50% chance of another Fed hike in October. While the dollar strengthened, a Bloomberg gauge of the dollar advanced 0.5% in New York trading. Gold, which typically loses appeal with rising rates, held its losses from the previous session, trading around $4,270 an ounce. Byron Anderson, head of fixed income at Laffer Tengler Investments, commented that the Fed's action was aimed at calming the bond market rather than signaling a prolonged hiking cycle.
