U.S. government bonds continued to rally broadly, in what is being called a “relief rally” in response to the Federal Open Market Committee’s (FOMC) decision to not raise short-term interest rates, also known as the Fed Funds Rate, from 0 to .25%. The decision to not lift rates was met with both disdain and approval as a mixed bag of opinions have surrounded this most recent FOMC meeting.
The Fed cited the recent economic events, including China’s slowdown and the overall global market uncertainty as reasons to not lift near term rates. Expectations are growing that the Fed might may wait until 2016 before deciding to move rates, even with the data showing little inflation and an improving job market.
The biggest benefactor of the FOMC’s decision has been short-term interest rates, which are highly sensitive to changes in the Fed’s policy.
Due to the developments over the last two days, we are mildly biased towards floating rates based on the last FOMC policy meeting.