December brought the last rate hike by the Fed for the year, but almost certainly not the last for this cycle. This latest move of 50 bp (0.50%) brings the Fed’s official policy rate — the federal funds rate — to 4.25%-4.50%. These policy changes continue to be well-telegraphed, but the Bank of Japan (BoJ) still believes there is value in surprising markets and did just that by increasing the target band for its 0.0% 10-year JGB policy (their yield curve control policy) from -25/+25 to -50/+50bp. Most observers expected such a move to come in April when the head of the BoJ, Haruhiko Kuroda, will retire.
This change in policy by the world’s last major central bank hold-out from dovish to hawkish helped push Treasury yields higher for the month. Key benchmarks were mixed in December: the Bloomberg U.S. Intermediate Aggregate Index return was -0.26% while the Bloomberg Municipal Index return was 0.29% as heavy buying and low supply led to slightly positive performance. Read more…
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