As Oil Continues Downward Trend, Bonds Rise Ahead of Fed – Asia Market Wrap

Global bonds advanced while oil extended its decline, as investors looked ahead to the Fed’s policy decision for further guidance on the path of interest rates.

Treasury yields remained near one-month lows, while Australian and Japanese 10-year yields fell 5 bps. Equity markets were mixed, with S&P 500 futures rising 0.3% after a tech-led selloff on Wall Street. The Nasdaq 100 fell nearly 2% on Tuesday as semiconductor stocks came under pressure, while a broad gauge of Asian equities gained 0.3% for a fourth consecutive session of advances.

Crude continued to slide, with Brent falling below $79/bbl to its lowest level in more than three months. Oil has dropped roughly 15% over the past four sessions, marking its longest losing streak of the year, as traders bet the US-Iran agreement to reopen the Strait of Hormuz will lead to increased global supply and ease inflation pressures.

The sharp decline in energy prices has prompted investors to reassess the global rates outlook ahead of the Fed’s first meeting under Warsh. While markets expect the Fed to leave rates unchanged, attention will focus on the policy statement, economic projections and any signals regarding future easing. Elsewhere, the BoJ is expected to remain an outlier among major central banks after raising rates this week, while most developed-market policymakers are anticipated to keep policy settings unchanged.

In China, the PBoC signaled a potential shift in its monetary policy framework toward greater emphasis on overnight rates. Governor Pan Gongsheng said the central bank will improve its management of short-term interest rates and may increase overnight reverse repo operations, a move that would bring China’s policy framework closer to those used by major global central banks.