Warsh Hawkish Stance Anchors US Treasury Rally
Fed Chair Warsh’s hawkish remarks drove US Treasury yields down by up to 10.1 basis points, reversing earlier gains.
US Treasury yields fell between 7.3 and 10.1 basis points on Thursday. The 10-year note retreated from the 5% psychological threshold. This move followed remarks by Fed Chair Kevin Warsh that reassured markets of a commitment to price stability. The dollar lost ground against the euro in the subsequent session.
The US dollar reversed some post-Fed gains as risk assets recovered. EUR/USD finished the day at 1.1476. German yields also declined, though with less magnitude than their US counterparts. The market reaction suggests investors are pricing in a more disciplined approach to inflation control.
Bank of Japan Hike Split Vote
The Bank of Japan raised its policy rate by 25 basis points to 1.25%. This is the highest level since 1997. The decision was passed with a 7-2 split vote. Two dissenters expressed doubt about the speed and size of future tightening.
USD/JPY surged to 157.1, recouping half of earlier yen gains. Japanese yields dropped slightly at the front end of the curve. Long-end yields remained flat but showed intraday volatility. Money markets price an over 80% chance of another hike by December.
BoE Bond Sales Plan Slower
The Bank of England confirmed a slower pace for government bond sales. The annual plan averages 22 billion pounds passively and 20 billion pounds actively. This is a deceleration from the current 70 billion pounds. The bank will spare the longest maturities during this wind-down.
UK gilt yields rose by up to 12 basis points on the 30-year mark. Sales are paused until April 2027 for final planning. The BoE is considering selling bonds to the Debt Management Office instead of the open market. This allows for better alignment with market demand.
Czech Bank Holds Rates Steady
The Czech National Bank kept interest rates unchanged at 3.75%. The decision was unanimous. Inflation has hovered near the 2% target since 2024. Core inflation remains elevated due to services and housing prices.
The central bank believes the June hike sufficiently tightened monetary conditions. Risks to inflation remain tilted to the upside due to strong domestic demand. The EUR/CZK pair stayed around 24.32. Swap yields extended earlier declines driven by energy prices.
