SINGAPORE (Mar 19): At the next Federal Open Market Committee (FOMC) meeting on March 20 and 21, the US Federal Reserve is expected to hike the federal funds rate by 25 basis points (bps) to between 1.5% and 1.75%. The CME FedWatch Tool calculates an 88.8% probability of a hike, based on Fed Fund futures contract prices. Yet equity, bond and currency markets do not seem particularly agitated.

At the end of January, following a strengthening of the FOMC’s language regarding inflation, the yield curve had steepened sharply. The yield on the 10-year US Treasury bond rose as high as 2.951% on Feb 21. This triggered a decline in equity indices and a rise in volatility, says BNY Mellon chief currency strategist Simon Derrick. Volatility subsequently rose in the foreign-exchange markets too, he notes.

In the past two weeks, however, the 10-year yield has receded to 2.84%. The Standard & Poor’s 500 Index, which had fallen to 2,581 points on Feb 8, was at 2,765.31 points on March 13. And the Deutsche Bank Currency Volatility Index, which had risen to 8.69 points on Feb 6, was at 7.38 points on March 13.

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