Two quarters later, the Federal Reserve remains dovish on interest rates, despite the passage of a record stimulus package. Because of the change of policy on the 2% inflation target, they have more leeway in policy. The emphasis is on economic recovery, and less on inflationary fears. Federal Reserve is committed to keeping policy rates on hold until the US labour market has achieved maximum employment, and inflation averages 2% over time. This would imply that the US policy rate will stay at 0% to 0.25% until well into 2023. 10-year Treasury bond yield will likely be capped at 1% due to inflationary fears.
For Asian bonds, growth outlook is supported by better management of the Covid-19 pandemic than in Europe and North America. Countries across the region will register positive growth as the region opens up faster than the rest of the world. The subdued inflation and attractive yield differential between Asian sovereign bonds and US Treasuries make Asian debt instruments appealing.
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