Government bonds firmed on Tuesday after whipsawing in recent days, as traders parsed predictions on how central banks may roll back loose monetary policies ahead of the US Federal Reserve’s latest meeting.
The Fed is expected to announce on Wednesday that it will begin tapering its $120bn monthly asset purchases. The taper has been fully priced into the market, but investors will be listening closely for hawkish signals in the announcement that could indicate when interest rate increases may begin. The two-year Treasury yield, which tracks US monetary policy expectations, declined 0.06 percentage points to 0.44 per cent after touching an 18-month high last week. Bond yields move inversely to prices.
Italy’s 10-year bond yield, a key gauge of the nation’s borrowing costs, dropped 0.14 percentage points to 1.07 per cent, having climbed as high as 1.28 per cent on Monday.