(Bloomberg) -- With a very dovish Federal Reserve and persistent chaos around Brexit, the stage is set for German 10-year bund yields to make a renewed assault on zero -- and all other European government bonds to follow in their wake.
The U.S. central bank's new dot plot, forecasting no rate hikes this year, is the key reason bonds are rallying. In addition, while Fed chairman Jerome Powell clearly made an effort to damp economic concern in his press conference on Wednesday, central bankers' qualms over the outlook are likely to add an extra element of support for the safety of fixed-income assets.
The change in the Fed's dot plot is striking. While in December only two policy makers were calling for no change in the Fed funds target rate this year, now eleven of them share that view. For 2020, we've gone from one to seven.
And with a no-deal Brexit risk lurking in the background, euro-area bonds have one more element in their favor. It should favor bunds, but also peripheral government bonds in the euro area. With the prospect of a persistently low interest rates around the world, carry will continue to be in high demand, pushing investors into higher-yielding securities.
Euro Rates Daily is an excerpt from the German language report “Renten am Morgen.” To read the current issue, please click Renten am Morgen: Dovishe Fed schickt Renditen auf Talfahrt
To contact the reporter on this story: Dirk Gojny in Frankfurt at dgojny2@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
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