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GLOBAL MARKETS-Bond yields near record lows after Fed rate cut

Published 04/03/2020, 10:30
Updated 04/03/2020, 10:36
© Reuters.  GLOBAL MARKETS-Bond yields near record lows after Fed rate cut
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* U.S. Treasury yields near record lows

* Euro STOXX 600 gains 0.7%

* S&P 500 futures rise as Biden rallies in primaries

* Dollar slides vs Asian currencies

* [9:23 AM] Wilson, Thomas (Reuters)

* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh

* Asian stock markets: https://tmsnrt.rs/2zpUAr4

(Releads; changes dateline and byline; adds quotes; updates

prices throughout)

By Tom Wilson and Scott Murdoch

LONDON/HONG KONG, March 4 (Reuters) - Bonds held their gains

on Wednesday as investors digested the U.S. Federal Reserve's

dramatic move to cut interest rates in an effort to contain

economic damage from the coronavirus.

The surprise 50-basis-point cut, the Fed's first

off-schedule move since 2008, came with comments highlighting

both the scale of the challenge and the limits of monetary

policy. In response, the benchmark 10-year U.S. Treasuries yield

US10YT=RR , which falls when prices rise, held below 1% - not

far over the overnight low of 0.9060%.

Euro zone bond yields also held near record lows, with

Germany's benchmark 10-year Bund yield DE10YT=RR around

-0.64%, near six-month lows set on Monday.

Some saw the Fed's extraordinary move as a decision to move

hard and early because it expected further economic damage from

the spread of the coronavirus.

"They have signalled willingness to take further action,

which is why we are seeing a further rally in bonds," said Tim

Drayson, head of economics at Legal & General Investment

management. "Some argue that monetary policy can't fight the

supply shock - but it will support demand and confidence."

With safe-haven currencies in demand, the dollar was near

five-month lows versus the yen JPY=EBS and fell to its lowest

against the Swiss franc CHF=EBS in almost two years. It was

flat against a basket of six major currencies =USD .

Global stock markets were mixed as investors digested the

Fed's move and a strong performance by Joe Biden in the

Democratic Party primaries in the United States.

The Euro STOXX 600 .STOXX gained 0.7%. Markets in

Frankfurt .GDAXI and London .FTSE rose around 0.8% and Paris

.FCHI 0.7%. On Wall Street, S&P 500 futures ESc1 climbed

1.5% on Biden's showing, after falling overnight despite the

Fed's rate cut.

Biden, a moderate considered less likely to raise taxes and

impose new financial regulations, won primaries in at least

eight states. That set up a one-on-one battle for the Democratic

presidential nomination with democratic socialist Bernie

Sanders. The European moves built on gains for Asia-Pacific markets,

where MSCI's broadest index of shares outside Japan

.MIAPJ0000PUS rose 0.3%.

Korean stocks .KS11 gained 2% on a $9.8 billion government

stimulus package to mitigate the coronavirus impact.

The MSCI world equity index .MIWD00000PUS , which tracks

shares in 49 countries, gained 0.2%.

CUTS NOT ENOUGH?

The Fed's surprise move followed a shift in money market

pricing late last week. 0#FF: Futures swung rapidly to

anticipate such a cut at the Fed's March meeting. FEDWATCH

Now, they imply another 50 basis points of easing by July,

even though investors and the Fed itself raised doubts that

easing will help deal with a public health crisis.

"If you're in China and you can direct liquidity exactly

where you need to, and have rate cuts where you want them to be,

monetary policy is very effective," said Sebastien Galy, senior

macro strategist at Nordea Asset Management.

"In the West, in a democracy, monetary policy is less

effective - you need to incentivise banks to do what is in to

the benefit of the whole."

The coronavirus has killed more than 3,000 people, about

3.4% of those infected - far above seasonal flu's fatality rate

of under 1%. It continues to spread beyond China -- Italy

reported a jump in deaths to 79 and South Korea reported more

than 500 new cases on Wednesday.

"The question here is whether a conventional interest rate

response is sufficient," said Sameer Goel, chief strategist,

Asia macro, at Deutsche Bank in Singapore.

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