Yellen Prompts Traders to Scale Back Bets on Fed Rate Increase

Bond traders pushed back bets for the Federal Reserve to raise interest rates this year after Chair Janet Yellen...

Bond traders pushed back bets for the Federal Reserve to raise interest rates this year after Chair Janet Yellen said the global economy presents heightened risks.

The probability of a move at the Fed’s next meeting in April has dropped to zero, futures contracts indicate. The odds are 64 percent by December, after traders saw a 73 percent chance as recently as the end of last week.

“The comment was more dovish than I expected,” said Wontark Doh, head of overseas fixed-income investment in Seoul at Samsung Asset Management, which oversees $200 billion. “One or two times is possible, three or four times is not possible. The upside for Treasury yields is limited.”

Yellen revived a rally in Treasuries, with the 10-year note yield dropping the most in seven weeks on Tuesday. The yield was little changed Wednesday at 1.82 percent as of 10:56 a.m. in Tokyo, according to Bloomberg Bond Trader data. The price of the 1.625 percent security due in February 2026 was 98 9/32.

Yellen mentioned two risks in her New York speech Tuesday. China’s expansion is slowing and there is some uncertainty about how the nation will handle the transition from exports to domestic sources of growth, she said. A second risk is the outlook for commodity prices, and oil in particular. Further declines in oil prices could have adverse effects on the global economy, she said.

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It is appropriate for U.S. central bankers to “proceed cautiously” in raising interest rates, she said.

To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net. To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net, Nicholas Reynolds, Naoto Hosoda

By: Wes Goodman

©2016 Bloomberg News

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