The US Federal Reserve confirmed plans to lower interest rates, triggering a significant market reaction in financial instruments.
Market Reaction to Fed's Decision
US Treasuries jumped on Wednesday after the Fed confirmed plans for two quarter-point interest rate cuts before the end of 2025. The two-year Treasury yield fell by five basis points, landing at 3.90%. Longer-dated yields across the board also dropped by at least two basis points.
Metal Prices Dynamics
The market reaction wasn't limited to bonds. Gold took a hit after the Fed decision, falling 0.4% to $3,374.75 per ounce, while futures remained almost unchanged. In contrast, platinum spiked 4.3%, finishing at $1,319.03, its highest since February 2021. However, Goldman Sachs analysts warned that rallies in platinum and silver could be primarily speculative.
Intensity of Foreign Selling of Treasuries
While bond prices were rising in the US, demand from abroad showed a different story. Foreign holdings of US Treasuries reached a record $9.05 trillion in March, but since late March, overseas institutions have started pulling back. Recently, they sold $17 billion worth of Treasuries, leading to a total reduction of $48 billion since March.
Market reactions to changes in Fed policy demonstrate investor sensitivity to interest rate changes, but the exit of foreign investors may indicate deeper issues with the demand for US debt.
