Yellen becalms global market volatility as Fed signals patience

[SINGAPORE] Federal Reserve Chair Janet Yellen becalmed markets around the world by signaling she's in no rush to raise interest rates, sending volatility down in bonds, stocks and currencies.

The Bank of America Merrill Lynch MOVE Index, which measures price swings in US debt, fell to 64.74 basis points Wednesday, a level not seen since the day after Christmas in 2014.

The Chicago Board Options Exchange SPX Volatility Index, a gauge of expected price swings in US shares known as the VIX, approached an eight-month low. JP Morgan Global FX Volatility Index dropped to the lowest level in five weeks.

"The rate hikes could take a long time," said Hideo Shimomura, the chief fund investor in Tokyo at Mitsubishi UFJ Kokusai Asset Management, which oversees about US$110 billion. "It's a sign of relief."

US central bankers skipped an interest-rate increase for the third straight meeting Wednesday. Their statement suggested they're positive about the underpinnings of US growth and are less worried - though not fully reassured - about risks posed by global economic weakness and financial-market turbulence. The Bank of Japan finished a meeting Thursday by holding policy unchanged.

Haven Assets

Haven assets jumped after the BOJ disappointed some economists who expected it to increase its record stimulus program to support the economy.

Japan's yen rallied 2 per cent against the US dollar, heading for the biggest gain since August.

Treasury 10-year note yields, the benchmark for borrowing rates globally, declined two basis points to 1.83 per cent as of 1:52 pm in Tokyo, based on Bloomberg Bond Trader data.

The price of the 1.625 per cent security due in February 2026 rose 5/32, or US$1.56 per US$1,000 face amount, to 98 5/32.

The markets may get even calmer now that the Fed and BOJ meetings are out of the way, said Yusuke Ito, the senior investor in Tokyo for Mizuho Asset Management, which oversees about US$46 billion.

"The two events are now gone, meaning less volatility going ahead," he said.

BLOOMBERG